CFA Institute Research Challenge

hosted by CFA Society China Shanghai

Team 12

Team12StudentResearch

COSL:IntheFuture

We issue aBUY recommendation on ChinaOilfield Services Ltd., (COSL)with atarget price of CNY22.46. This offers a 28.05%upside from its closing price ofCNY17.54onNovember7,2014.COSLhadastronghistoricalperformanceanditenjoysarobustgrowthpotentialdrivenbyadditionsofdrillingrigsandbyeffectofintegration.However,marketconcernsabouttherecentinternationalcrudeoilprices slump sent COSL’s stock price dropping, leading to a relatively low P/E(10.2x,TTM)whencomparedtothatofitsdomesticpeers(meanP/E28.98x,TTM)andthatofglobalpeers(meanP/E12.06x,TTM).WebelievethatthedeclineinoilpricehasalimitedinfluenceonthegrowthofCOSL,andthatCOSLisabletosolidifyitsdomesticpositionwhileexpanditsoverseasbusiness,reinforcingapromisingfuture performance. .

StrengtheningCoreCompetenceWeidentify thecorecompetenceof theCompanytobe theabilityofofferingintegratedservices,advanceinequipmentscaleandR&Dstrength.COSLisasubordinatecompanyofthebiggestoffshoreoilandgasproducer,ChinaNationalOffshoreOilCorporation,andhasdominatedabove90%domesticmarketduetoitsability tooffer integratedservices inChina. Increasingequipmentscaleandtechnologyadvancesguaranteedasustainablerevenuegrowthinallfourbusinesssegments.About80%workingcontracts in2015havealreadybeensigned,guaranteeing future revenueofdrillingsector.Due to synergeticeffect,Wellservicessegment,isexpectedtohavearapidgrowth(+50.4%YoY,2014).Also,byoptimizingequipmentstructureandraisingworkingefficiency, theother twosegmentsareabletohavefairgrowthinrevenue..

StrongOperatingPerformanceandFlexibilitytoFutureExpansionAnoverallgrowthtrendinrevenueissupportedbyrobustdrillingbusinessandthe effect of integration on well services sector. Due to its effective operatingperformance,weexpectCOSLwillenjoyahighoperatingprofitmarginabove25%andconsistentlypositiveoperatingcash flows ranging from10.8 to19.4billionCNY during 2014E~2018E. .Togetherwith a stable debt ratio around 54%, COSL is able to cover its yearlycapitalexpenditures (CNY6.5~9.5billion,estimatedaccording to2014StrategicGuidanceofthecompanyandmarketdemand)bycashflowsfromoperatingandstill has enough financial flexibility to expand its operating capacity, despitepayoutsofhighdividends(30.55%payoutratio)..

SuperiorityinBloomingDomesticandGlobalMarketOilFieldService(OFS)industryhasagoodprospect,anditssustainabilityliesinthecontinuousdemandofoilandgasenergy.Exploitationpracticeofoilandgasreserves in deep sea is the great potential of OFS’s business. Also, ChinaOFSmarketisgrowingwithmoreinvestmentstoexploitation,especiallyintheSouthSea.With the blooming trends, COSL enjoys superiorities (1)in domesticmarketmainlybecauseofitsspecialstatusofthesoleintegratedoffshoreOFSproviderinChina and the stable client base and (2)in global market due to updatingtechnologies,optimizingequipmentstructureandgoodreputationaccumulated.

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ThisreportispublishedforeducationalpurposesonlybystudentscompetinginTheCFAInstituteResearchChallenge.

Industrial Sector, Oil Equipment, Services & Distribution Shanghai Stock Exchange(SSE)

China Oilfield Services Ltd,.Date: 9/11/2014 Current Price: 17.54 CNY Recommendation: BUY(28% Upside) Ticker: 601808-SH USD 1.00: CNY 6.12 Target Price: 22.46 CNY (3.67USD)

MarketProfile

ClosingPrice(CNY) 17.54

52WeekPriceRange(CNY)

15.99‐25.81

AverageDailyVolume(3m)

11,598,500

SharesOutstanding

4,771,592,000

MarketCap(mnCNY)

73,096

DividendYield(TTM) 2.5%

P/E(TTM) 10.2

P/B(TTM) 1.9

EV/EBITDA(TTM) 7.2

Source:ThomsonReuters

ValuationResult

FreeFloatPercent 18.00%

DCF 22.64

Multiple 21.66

TargetPrice 22.46Source:ThomsonReuters,Teamestimates

15

17

19

21

23

25

27SharePriceMovement

TargetPrice22.46

Source:CompanydataandTeamestimats

COSL'sKeyFinancialRatiosKEYRATIOS 2012A 2013A 2014E 2015E 2016E 2017E 2018EEBITDAMargin 40.90% 41.70% 39.70% 38.10% 37.10% 36.00% 35.30%OperatingProfitMargin 25.20% 27.80% 25.60% 25.90% 25.80% 25.40% 25.30%NetIncomeMargin 20.50% 24.40% 21.70% 21.50% 21.50% 21.30% 21.30%ROE 14.20% 18.00% 16.00% 16.50% 17.00% 17.00% 17.00%CashRatio 1.20 0.80 0.90 1.00 1.10 1.20 1.20FixedAssetTurnover 48.00% 56.00% 61.00% 68.00% 74.00% 80.00% 85.00%LTDebttoAssets 46% 37% 44% 44% 43% 42% 41%InterestCoverage 11.60 12.80 9.90 10.40 11.10 11.80 12.50EPS 1.01 1.49 1.56 1.84 2.18 2.52 2.88

Source:Companyreport,Teamestimates

BusinessDescriptionChinaOilfieldServicesLimited(the“Company”,or“COSL”)isamajorsupplierofoffshoreoilfieldservicesand theonly integratedservicesprovider inChina. It isa subordinatecompanyofChinaNationalOffshoreOilCorporation (“CNOOC”), a state‐ownedenterpriseand thebiggestoffshoreoilandgasproducer inChina.Established in2001, theCompanyhasgainedamonopolyposition indomesticoffshoreoilfieldservicesmarketandcontinuingexpansionopportunitiesinoverseasmarket.WeidentifythecorecompetenceoftheCompanytobetheabilityofofferingintegratedservices,advance inequipmentscaleandR&Dstrength,sustainable financialstandingandahealthyclientbase. .

BusinessModelAsasolutionproviderof integratedoilfieldservices,COSLofferproducts thatcovereachphaseofoffshoreoilandgasexploration,developmentandproduction.Specifically,itsservicesincludedrillingservices,wellservices,marinesupport&transportationservices,andgeophysical&surveyingservices.Inthepastthreeyears,allfourbusinesssegmentshaveachievedacompoundannualgrowthrateover11.5%andcontributedtoanimpressiveoverallCAGRof21.86%,becausetheoveralldemandintheOFSmarketwasrobust,thecapitalexpenditureofthekeyclientsofCOSLcontinuedtoincrease,andtheirexplorationanddevelopmentoperationalactivitiesintensified.(Table1,2).

Drillingservicessegmentaccountedformorethan50%ofthetotalrevenue,andin2013reachedaCNY14.67billionrevenuewitharapidyearoveryeargrowthrateof30.3%.Revenueisdeterminedonthebasisofcontractwhereagreementonthenumberandtypeofdrillingrigs,operatingperiodanddailyoperatingratesisreached.Thuskeyrevenuedrivesofthebusinessincludescaleandutilizationrateofdrillingrigs,operatingdays,andaveragedailyincome..

Thesecondlargestsegment,Wellservices,seesarisingtrendintheshareofrevenuecontributionandhasreachedarecordgrowthof33% in2013due to the increase inoperatingvolumeundermultiplebusinesslinesandtheimplementationofadvancedtechnology.Crucialfactorsofthebusinessincludethecontinuousinputintechnologyresearchanddevelopment,advancedtechnologicalfacilitiesandanexcellentmanagementteam..

Marinesupportandtransportsegmentpossessesandoperatesthelargestandmostcomprehensiveoffshoreutility transportation fleet inChina.Asof31December2013, itownedanaggregateof69utilityvesselsofvarioustypes,3oiltankersand4chemicalcarriers,whichareresponsibleforsupplies,cargoesandcrewtransportationandstandbyservicesat sea,andprovidemovingandpositioningservicesfordrillingrigs,towingandanchoringservicesforoffshorevessels,etc.Futuregrowthliesintha tCOS Lenteredintoconstructioncontractsfor15vessels,whichwereexpectedtobedeliveredfrom2015. .

Geophysicalandsurveyingsegment isamajorproviderofgeophysicalandsurveyingservices inoffshoreChina,aswellasan importantparticipant in theglobalmarket, including theAsia‐Pacificregion, theSouthandNorthAmericas,theMiddleEast,AfricaandEurope.COSLcurrentlyowns7seismicvessels,2underseacableteamsand7integratedmarinesurveyingvessels.Therevenuefromthissegment is relativelyvolatilebecauseoperatingefficiency is subjected toacertainextentbyweather,seaconditionsanddisruptionsbythefishingbusiness..

CompanyStrategiesCOSLaimsatbecomingan international first‐classoilfield servicescompany, insistson sustainableoperationmodelandcreates short‐termto long‐termeconomic, socialandenvironmentalvalue forstakeholders. .

Continuous InvestmentandOptimizationofEquipmentStructure ‐inorder to enhancedevelopmentpotential,COSLlargelyincreaseditscapitalinvestmentandthusboosteditsrevenue.Thec apitalexpenditureofCOSLamounted toCNY8,660.7million in2013, representingan increaseof106.7%.CapitalexpenditurewillbearoundCNY7~8billioninfutureyearsandtheadoptionoflease‐construct‐purchasestrategyonequipmentwill furtherhelp tooptimize internalresourceallocationandtoimproveefficiencyofexternalresourcesusage.. ResearchAndDevelopmentofTechnology‐ technologybreakthroughwillguaranteea leadingposition forCOSL indomesticmarketandaid tooverseasmarketexpansion.Arecentsuccess inapplyingRotarySidewallCoringTechnique indeep‐water illustratesCOSL’sgreatpotentialandpersistent effort, for COSL is the forth company in theworld tomaster this high‐end service. RiskControlAndSafetyAndEnvironmentalProtection‐emphasisonrisk control sets solidfoundationforsatisfactoryoperatingresults,helpstobuildamarketreputationofthecompanyandenhancesaloyalcustomerbase.EffortsinenvironmentalprotectionreflectthesocialresponsibilityoftheCompanyandhelptosecureafavorabletaxrate..

ShareholderStructureCOSLhaslisteditsHsharesontheMainBoardoftheStockExchangeofHongKongLimited(“HKSE”)since20November2002undertheticker2883.SZ.From26March2004,COSL’sstockscanbetradedbymeansofLevel1unlistedAmericanDepositaryReceiptsatOTCmarketundertheticketoftickerCHOLY.COSL.Since28September2007,COSLhasitsAshareslistedontheShanghaiStockExchange(“SSE”)undertheticker601808.SH.(Figure1).

COSL isownedby twomajorshareholdergroupsand thepublic.Asof June2014,CNOOCholds2,410,468,000shares,amountingto50.52%oftotalsharesoutstanding;Nationalsocialpensionfundcouncilaccountsfor50,000,000shares,representing1.05%oftotalshares;thepublichold48.44%ofthe total shares, including37.96%heldbyH shares investorsand10.48%Ashares investors.

Table1.RevenuesbyServiceSegmentsRevenueCNY'000‘000 2011 2012  2013  CAGR 

Drillingservices

9,515 11,252  14,665  16.28% 

share 51.64% 50.90%  53.59%  ‐ 

Wellservices 3,950 4,858  6,475  14.38% 

share 21.44% 21.98%  23.66%  ‐ 

Marinesupportandtransport

2,534 2,945  3,251  11.49% 

share 13.75% 13.32%  11.88%  ‐ 

Geophysicalandsurveying

2,427 3,050  2,972  23.95% 

share 13.17% 13.80%  10.86%  ‐ 

Total 18,426 22,105  27,363  21.86% 

Source:Companydata

Table2.RevenuesBreakdown2013Servicesegments bnCNY yoy% share

Drilling 14.67 30.30% 53.82%

Well 6.48 33.30% 23.77%

Marinesupportandtransport

3.25 10.40% 11.92%

Geophysicalandsurveying

2.97 ‐ 10.90%

Total 27.26 23.80% 100.00%

Domestic 18.4 21.30% 67.50%

Overseas 8.86 29.30% 32.50%

Source:Companydata

CNOOC50.52%

Otherpublicinvestors10.53%

Hshares37.90%

Ashares62.10%

Figure1.ShareholderStructureofCOSLasofJune2014

Source:CompanydataNationalpensionfundcouncil,1.05%

Table3.MarketPerformance2013

Index 2011 2012 2013

Totalequity(CNY100mn)

284.59 322.05 372.6

Internationalrevenue(CNY100mn)

51.74 68.79 88.98

Shareofinternationalrevenue(%)

28.1% 31.1% 32.5%

Domestictax(CNY10’000)

137,379.34 160,525.97 184,044.44

Overseastax(CNY10’000)

50,347.91 120,371.17 173,518.83

Numberofnewpatents

103 135 158

Source:Companydata

Table4.SocialPerformance2013

Index 2011 2012 2013

Percentageoffemaleemployees(%)

8.27% 9.13% 9.09%

Staffturnoverrate(%) 2.2% 1.6% 1.7%

Employeereliefinvestment(CNY10’000)

48.07 54.78 72.59

Totaldonation(CNY10’000)

1500 20 64.69

Numberofmaritimerescueandsalvage

16 22 20

Numberofemployeesparticipatingvolunteeringactivities

768 856 864

Notes:Thesubstantialincreaseindonationfor2011ismainlyusedastheredevelopmentofearthquakeinWenchuan.Source:Companydata

CorporateManagementTherearenomajorrecentchangesindirectors’,supervisors’,andseniormanagers’shareholding.Theonlychangeisthatanindependentnon‐executivedirectorofthecompany,Mr.ChenQuanshengresignedasquestedbytheParty’snewly‐promulgatedrelevantdocumentsandMr.LuoKangpingwasselectedsuccessorbythegeneralmeetingofshareholders.

CorporateGovernanceandSocialResponsibilityCorporateGovernanceThegovernancestructureofCOSLnotonlyincludesthosesetoutintheCorporateGovernanceCodeofHKSE,thePRCCompanyOrdinanceandtheArticlesofAssociationoftheCompany,butalsoourmorestricterandself‐establishedstandards. . .

TheCompanyresolvedthetaxdisputeofsubsidiariesinNorwaylastyear,basedonthatexperience,theCompanyfurtherimprovedriskmanagementofitsinternationalbusiness.(Table3).

SocialResponsibilityTheCompanymaintainedanexcellent recordofsafetyoperationduring the sustainedandrapiddevelopment,noseriousaccidentsregardingsafetyhappenedformanyyears.TheCompanyachievedsignificant results in theaspectsofenergysavingandemissionreduction,particularlyenergyconsumptionperunitofoutputdeclinedcontinuously...

Themajorhighlightsin2013oftheCompanyintheaspectofsocialwelfareincludedmaritimerescue,communitybuildingandvolunteer’sactivities.In2013,theCompanysaved18vesselsindistressand52people’slives.(Table4)..

Inaddition, internationalbusinessaccountedforalmostone‐thirdoftheoftheCompany’sbusiness,andtheCompanyhadoverathousandoverseasemployees.Thecompanypaidmoreattentiontothecontribution to localeconomy,environmentandsocialdevelopment in theprocessofbusinessinternationalization, continued to strengthen itscooperationwithoverseas localgovernmentsandcommunities,activelyparticipatedindonationtoimprovethelivelihoodoflocalpeople,participatedindisasterreliefandvariousrescueactivities,andfocusedonenvironmentalprotectionandecologicalbalanceoftheworkarea. .

IndustryOverviewandCompetitivePositioningIndustryOverviewOilfieldservicesindustry(theOFSindustry),astheupstreamindustryofgasandoilindustry,whichisa significantcomponentof thewholeenergy industry,providesservicesduring theprocessofexploration,developmentandproductionofoilandgas.Andisdirectly influencedbythegasandoilindustry,whileindirectlyinfluencedbyenergyindustry..

ChangingEnergyIndustryTheenergyindustryisthetotalityofalloftheindustriesinvolvedintheproductionandsaleofenergy,includingfuelextraction,manufacturing,refininganddistribution.Andiscloselyrelatedtooilpricesandreflectspublicconsensusexpectationofglobaleconomy..

SlowlyRecoveringGlobalEconomy–Although forecast foreconomygrowthhasbeenwidelyreviseddown,theaftermathofglobaleconomiccrisisisactuallydecreasing.Andweseeworld‐wideeconomygrowthofdifferentdegrees.(Table5). MoreFaithInChinaEconomy–AfterPresidentXitookoffice,thenewleadershiphasmadearealdifference inanti‐corruption,environmentalgovernanceandetc.And theseeconomy‐restructuringchangesmighttemporarilycausereduction(7.6%to7.4%,byTheWorldBank)oneconomyforecastbuttheypresentbetterchancesforfuturegrowth.. NoStructuralDecline InOilPrices ‐Due tosufficientsupplyofnon‐OPECcountries,whichweakenedtheimpactoftheunrestintraditionalmajorsupplier,likeRussia,andthesaturatingdemandfornow,theBrentCrudeOilpricehasfallentobelow88USD.Butaslongaspetroleumremainsthemajorenergyresourcesandnonew financial crisis instore,weseenosharpdecline.(Figure2) . ProtectedChinaOilPricingMechanism ‐Thepricingmechanismofproductoil, formulatedbyNationalDevelopmentandReformCommission(theNDRC),protectsdomesticoilpricefromfrequentglobaloilpricefluctuationsandisstillintheprocessofinternationalization,whichprovidesiginificantprofitspacefordomesticpetroleumcompanies. . StructuralChangesBrewingInEnergyIndustry‐Astypicaldemand‐drivenindustry,theenergyindustry isnowfacingstructural internalchanges,drivenby technologybreakthroughs inshalegasanddeep‐seaoil,whichwillimpactthesupply‐sideofenergybutnotthedemand‐side.(Figure3).DefensiveOFSIndustryOFSindustry,initsgrowthstage,consistsof5sections,33segments,inwhichtheoffshoredrillingandoffshoreconstructioncontractsaccountsformorethan10%marketshareandismainlyaffectedbyeconomicgrowthand investment inoilandgasexploitation.Also, long‐termtrendofpetroleumpriceswillaffectOFS industry’s revenues,moreover,affects thedevelopmentofOFS technology.

GiantsAndSpecialists ‐Bothbigandsmallenterprisescoexist in relativelyhigh‐concentratedabroadOFSindustry,withbigcompanies,likeSchlumberger,HalliburtonandBakerHughesprovidingcomprehensive services and small companies specializing in certain market segments. Capital‐IntensiveMonopolies ‐Huge financial support isneededdue to expensesof largeequipmentsandR&D,which forms largeobstacles fornewplayersandsecuresalready‐existedcompanies’position.Further,with thecentralizationofOFS industry,advancedtechnologyof theleadingcompanies,especiallythecoretechnology,reinforcesmonopoly..

Table5.GDPGrowthbyRegion

Region 2011A 2012A 2013A 2014E 2015E

LatinAmericaandtheCaribbean

4.1% 2.6% 2.4% 1.9% 2.9%

EuropeandCentralAsia

6.2% 1.9% 3.6% 2.4% 3.7%

EastAsiaandthePacific

8.3% 7.4% 7.2% 7.1% 7.1%

MiddleEastandNorthAfrica

(0.8%) 0.6% (0.1%) 1.9% 3.6%

SouthAsia 7.3% 5.0% 4.7% 5.3% 5.9%

Sub‐SaharanAfrica

4.5% 3.7% 4.7% 4.7% 5.1%

Source:WorldBankGroupreport

Source:ThomsonReutersdatabse

Source:DouglasWestwood

Figure3.WorldOilandGasProductionForecast

Source:ThomsonReutersdatabase

Figure4.HysteresisEffectofOilPriceonOFSIndustry

HysteresisEffectofOilPrice‐Consideringthelongperiodofoilexploitation,theimpactofsharpdeclines inoil industry isusuallydeferredoneyearormore.Andalongwith thedeferredtime, theactualinfluencewillbesmallerthanitseemedtobeatthattime.(Figure4). ImpressivePotential forSpecialChinaMarket ‐China’sOFSmarketexceeds250billionCNY,whichaccountsforabout10%globalmarketin2013.InChina,state‐ownedenterprisesshare85%ofthemarket,andmostprivatebusinessesprovideonlysimpleservices.(Figure5).

Inrecentyears,theoilserviceindustrymarketaveragegrowthrateisofover10%,thescaleisgrowing,and fiveservicessector improved.Alongwith technological innovation,deepwatermarkethas juststartedtodevelop.Theworld'soffshoreoilreservesofabout100billiontons,whileprovenreservesof about 40billion tons; natural gas resourcesof about 140 trillionm3, proved reserves ofapproximately40trillionm3.Amonglarge‐scaleoilandgasfieldsdiscoveredindecades,marineareasaccountforabout60%of,withaneconomicvalueofapproximately$20to$40trillion.Inthefuture,44%of theworld's total reservesofoilandgascomes fromthedeepsea,butcurrentlyonly3% isdeveloped,sodeep‐seaoilandgasresourcepotentialishuge. .China'scurrentcapacityof107.27billiontonsofoilresources,includingoffshoreoil24.6billiontons,accountingfor23%ofthetotal;marinegas16trillioncubicmeters,accountingfor30%ofthetotal.Atpresent,China is still in theearly stageandmid‐oceanexploration,whichwasonly12.1percentofChina'smarineoilandgasproven,farbelowtheworldaverageof73%oftheprovenrateandprovenrateof75%oftheUnitedStates.Atpresent,ChinamainlyfocusedonthedevelopmentofmarineBohaiSea,YellowSea,andSouthChinaSea,thePearlRiverestuary,whiletherestoftheSouthChinaSeadidnotreallydeveloped,where70%reservesindeep‐seaareas.Giventhemonopolystatusandtechnologyadvantageathome,COSLhadagreatpotential inChina’soilfieldserviceindustry. .

BloomingOffshoreOFSIndustryOffshoreOFSindustry(commonnamefor“near‐seaanddeep‐seaOFSindustry”),asanimportantnewsegmentofthewholeOFSindustry,alsoservesthepetroleumcompanyandprovidesservicescoveringallphasesof exploitation,and isoften featuredasheavyequipment,high technology,andhighinternationalization. .

YoungAnd ImmatureOffshoreOFS ‐Compared to landoil’sover100‐yearexploitationhistory,offshoreoilhasahistoryofonlydecadesandisstronglyconditionedbytech‐breakthroughsduetothecomplexitylyinginoffshoreexploitation,whichprovidesrelativefaircompetitionpositionsforallOFS

industryplayers. . FutureLiesInDeep‐seaOil‐Withlandoilrunningoutofuseandmoreoffshoreoilpreservesbeingverified,theexpendituresontheoffshoreoilbythepetroleumcompanyaresuretoincreaseandwillbenefitoffshoreOFS industry.Andsometimesdeep‐seaoilexploitationmayget involved in landdisputesandgeopolitics. .

CompetitivePositioningCOSLisataspecialcompetitivepositionduetomuchdifferenceincompetitionenvironmentbetweendomesticandglobalOFSmarket. .

Domestically,withthelargestmarketscale,thecompanyremainsitsleadingsuperioritywithonly5outof15mainOFScompanies (listed inAsharemarket) involved inoffshoreOFSandsustainablestable income from itsparentalcompany,CNOOC,whichaccounted for60%revenues(1H2014).Moreover,COSL’sgoodrelationshipwithgovernmentguarantees itsuniquepermission tonationalterritorialwaters. .

OnlyIntegratedOffshoreOFSProvider–AstheonlyintegratedservicesproviderinChina,COSLhasgainedmonopolypositionindomesticoffshoredrillingandtransportmarket,withits4businesssectorsshowingremarkablesynergisticeffect.TechnologicalthresholdsandhighcapitalexpenditureofoffshoreOFSindustrywithrequirementsmuchharderthanthatoflandOFSblocktheentranceanddevelopmentof competitors.Also,as referredbefore,oceanenergy resource is related tonationalterritorialwaterssecuritywhichmeansplayersmusthavestrongsupportfromgovernment.(Table6) HealthyClientBase‐About60%ofCOSL’srevenue(1H2014)isfromCNOOCandabout27%isfrom4majorclients,inwhichStatoilisthelargestNorthernEuropeoilcompanyandConocoPhillipsisthe3rdUS largestenergycompanyandthisgiant‐clientbaseguaranteesconstantbusiness incomeandsuperioritieslikeshorterA/RTurnoverdays.(Figure6,Table7).

Globally,increasinginvestmentinfar‐from‐saturationinternationaloffshoreOFSmarketguaranteeshugegrowingspaceforCOSL,whichhasgainedcontinuingexpansionopportunitiesunderthesynopticdevelopmentstrategy. .

RegionbyRegionExpansionStrategy ‐COSLhasestablished4maincoreregionalmarkets,SoutheastAsia,theMiddleEast,AmericaandtheNorthSea,whicharethecurrentmostactiveregionsofoilandgasexploitation.Besidesconsolidating thesemarkets, it’salsoexpanding through thesynergisticeffectofitsintegratedservices.. OptimizingEquipmentStructure–Throughyearsofequipmentupgradesandpurchases,COSLisnowbuildinganequipmentlibraryofhigherprofitabilityandstrongerdeep‐wateroperationcapacity(Table8) . AccumulatingGlobalReputation–Duringyearsofdevelopment,COSLhaswonmanyawardsandgainedhighreputationforitshighqualityservice,whichhelpsCOSLwinmoreoverseasmarketandmakesavirtuouscircle.(e.g. inApril2014,COSLachievedseveralawards fromShell for itsseismicacquisitionservices;COSLPioneerachievedRigoftheMonthfromStatoilformanytimes;CDEcame1stoutof13in2013Statoildrillingcontractorrank.) .

Figure6.Top5ClientsbyRevenuesin1H2014

CNOOC60%

PetroleosMexican4%

CNPC5%

ConocoPhillips7%

Statoil11%

Others13%

Source:Companydata

Table6:BusinessSectorsComparison

Company COSL HBP Land‐Ocean

TongOil

SinoGeo

Drilling ✓ ✗ ✗ ✗ ✗

Wellservices ✓ ✓ ✓ ✓ ✓

Marinesupportandtransport

✓ ✗ ✗ ✗ ✗

Geophysicalandsurveying

✓ ✓ ✓ ✓ ✓

Source:Companyreport

Table7.A/RTurnoverinDaysComparison(AverageCollectionPeriod)

Company 1H2014 2H2013 1H2013

COSL(Day) 77.59 64.5 76.34

HBP(Day) 151.71 149.17 161.45

LandOcean(Day) 343.45 342.11 328.17

TongOil(Day) 686.76 333.46 375.63

SinoGeophysical(Day)

1083.03 444.66 540.38

Source:Tonghuashunfinance

Table8.COSLMainEquipment2013

Segment Equipment Number

Drilling

Jack‐upPlatform 33

Semi‐submersiblePlatform 10

ModuleRig 6

Geological&

Geophysical

GeophysicalVessel 7

ReconnaissanceVessel 7

SubmarineCableTeam 2

Source:Companyreport.

Figure5.ChinaOFSMarketScaleasof2013

Source:ThomsonReutersdatabaseExceeds 250 billion CNY

InvestmentSummaryGoodTimingtoBuyWeissueaBUYrecommendationonChinaOilfieldServicesLtd.,(COSL)withatargetpriceofCNY22.46.Thisoffersa28.05%upsidefromitsclosingpriceofCNY17.54onNovember7,2014.COSLhadastronghistoricalperformancewithrapidrevenuegrowth(32.5%in2013;22.2%inQ1‐Q32014),anditenjoysa robustgrowthpotentialdrivenbyadditionsofdrilling rigsandbyeffectof integration.However,marketconcernsabouttherecentoilpricedropsentonCOSL’sstockprice,leadingtoarelativelylowP/E(10.25x,TTM)whencompared to thatof itsdomesticpeersaverage (28.98x,TTM)and thatofglobalpeersaverage(12.06x,TTM).WebelievethatthedeclineinoilpricehaslimitedinfluenceonthegrowthofCOSL,and thatCOSL isable tosolidify itsdomesticpositionwhileexpand itsoverseasbusiness,reinforcingapromisingfutureperformance..

SustainableOperatingProfitSupportedbyCoreBusinessRevenueofCOSLhasbeengrowingover theyearsand isexpected tokeep this trend in the future.Amongthefourbusinesssegments,DrillingsegmentcontributestomorethanhalfofthetotalrevenueandwillcontinuetoserveasamajordriveduetoincreasingoperatingdaysandaveragedayincomefromJack‐UpandSemi‐SubRigs.TechnologyimprovementinWellservicessegmentcanconvertintomidtolongtermpotentialgrowth.BecauseofthenatureandtheeffectofintegrationamongCOSL’scorebusinesses,operatingprofitmarginshavebeenstable (above25%)duringpastyearsand isexpectedtoremainthesameinfuture.Anotherresultofthecompany’seffectiveperformanceisitshighoperatingcashflow,showinghighearningsqualityasrepresentedby113.7%to117.5%CFO/EBITduring2014E‐2019E.(Figure7) .

SoundFinancialPositionandFlexibilitytoFutureExpansionCOSLwillmaintain itsstrong financialpositionandhighoverallcashgenerationability.COSLhasafavorable cashpositionas shownby itshigh liquidity ratios.Thesestrongcash flowsalso led toimprovingcapitalstructure,withadecreasingtrendinbothLong‐TermDebttoAssetsandDebtratioandan increasing interestcoverage from9.88x to12.54x in the following5years,which in turnprovidesthecompanyfinancialflexibilitytoinvestinnewventures..

Considering themarketconditionofRigs fleetandCOSL’sstrategicguidanceof2014,weexpectaconservativeCAPEX/Assets ratioof0.06xduring2014E‐2018E, lower thanglobalaverageof0.10x.Sincethecompany’sCFO/CAPEXhasbeenat240%in2012and110%in2013,weexpectthatCOSLhasenoughfinancialflexibilitytoexpanditsoperatingcapacity,whichisevidencedbyapositivetotalcashflows,despiteprojectedoutlaysofacquiredPPEandpayoutsofhighdividends(30.55%payoutratio). .

PredictableSustainingGrowthinDomesticMarketChina is redundant inoilandgasresourceswithacurrentcapacityof107.27billion tonsofoil resources, including24.6billion tonsofoffshoreoil, accounting for23%of the totaloil resources;marinegas16trillioncubicmeters,accountingfor30%ofthetotal.Atpresent,Chinaisstillintheearlystageandmid‐oceanexploration,sothereisstillgreatpotentialinexploitation.Theprovenrateisonly12.1percentofChina'smarineoilandgasproven,farbelowtheworldaverageof73%oftheprovenrateandprovenrateof75%oftheUnitedStates.Atpresent,ChinamainlyfocusedonthedevelopmentofmarineBohaiSea,YellowSea,thePearlRiverestuary,whiletherestoftheSouthChinaSeadidnotreallydeveloped,where70%reservesindeep‐seaareas.Facingthesesituations,Chinesegovernmenthasbeencontinuouslyincreasingitsinvestmentscaleonoceanoilandgasexploration,whichmeansthereisstillhugespacetogrowindomesticmarket..

COSLenjoysitshighcompetitivenessindomesticmarket,mainlybecause:(1)Inconsiderationofhighthresholdsof technologyandcapitalexpenditureof theoffshoreOFS industry,COSL,as thesoleintegratedoffshoreOFSprovider inChinamarket, isable tomaintain itsdomesticmonopolystatus(95%marketshareindomesticoffshoredrillingmarket);(2)Nearly60%ofitsrevenuecamefromitsparentcompanyCNOOCandabout27%fromglobalgiantoilcompany,whichprovideastableclientbase. .

GreatPotentialinGlobalMarketConsistentdemandofoilandgasdrivesexploitationfromlandtooffshore,especiallydeep‐sea,andguaranteesstableexpenditures inexploitation frompetroleumcompanies.Also,greatpotentialofoffshoreoil reservesprovidesmanyopportunities foroffshoreOFS industry.Afteryearsofglobaloffshoremarketexplorationandequipmentupgradesandpurchases,COSLhasnowgainedexperiencesof international operationandestablished fourmaincore regionalmarkets,whichwinsCOSLaccumulating global reputation and more contracts from both old and new cl ients .(Figure8,9) .

ValuationMethodsWehaveconsideredtwostandardapproachestovalueCOSL‐DiscountedCashFlow(DCF)modelandcomparablecompanymultiplepricing.Andweadoptaweightedaverageadjustment,whichisbasedon thestrategicentities’proportionand free floatproportionofCOSL’s total sharesoutstanding, toarriveatafinaltargetprice,sincewebelievethatmultiplesreflectmarketexpectationsofthecompanywhilestrategicentitiestendtohaveamoreconservativeevaluation..

PossibleinvestmentrisksKeyrisks investorsmustbeawareof includeregulatoryrisks thatdemand forhydrocarbonsandeconomicgrowthkeeps lowandunexpectedgrowthofproduction.Marketrisks includetechnologydevelopmentandcompetition fromshaleoilandgas,also investorsshouldnoticecurrencyand taxpolicieschange.Exceptthat,operationalriskincludingoperationaccidents,weatherconditions,andpoliticalunrest,geopoliticalunrestshouldbetakenintoconsideration..

22,278,742 27,527,118

32,432,450 38,665,967

45,765,039 53,256,204

60,913,115

Source:Teamestimates

4,569,770

6,726,434

7,046,445

8,312,736

9,843,428

11,347,374

12,965,088

2012A 2013A 2014E 2015E 2016E 2017E 2018E

Figure7.RevenueAndNetIncomeForecast(1'000CNY)

NetIncome

Source:Companyreport.

Source:Barclays.

ValuationWehaveconsideredtwostandardapproachestovalueCOSL‐DiscountedCashFlow(DCF)modelandcomparablecompanymultiplepricing.Wederivedone‐yeartargetpricesat22.64CNYand21.66CNYbyusingDCFmethodandmultiplepricingmethod,respectively.Andaccordingtoweightsof82%and18%,wethencalculatedafinaltargetpriceof22.46CNY(upside28.05%to17.54CNY7Nov.2014).Theweightsare justifiedby the free floatproportion(18%, fromThomsonOne)and thestrategicentities’proportion(82%)ofCOSL’stotalsharesoutstanding,sincewebelievethatmultiplesreflectmarketexpectationsof the companywhile strategicentities tend tohaveamoreconservativeevaluation. .

DCFValuation WeusedtheDiscountedFreeCashFlowtoFirm(DCF)methodinarrivingatavaluepercommonshareofCNY22.64.ThismethodissuitablebecauseCOSLhashighgrowthprospectsandFCFFappropriatelyreflectsthefreecashflowvalueofthecompanyandaccountsforfuturegrowthaswellasalong‐termperspective. .

Inapplying theDCFmethod,we forecasted10‐yearpro formafinancialstatements,andassumedaconstantgrowthratefortheterminalphase.Thefollowingfactorsarematerialeitherwhenassessing

theperformanceofthecompanyorwhencalculatingtheDCF. .

RevenueAccordingtoCOSL’sbusiness, therevenue isdivided into fourparts:Drilling,WellService,MarineSupport&Transport, Geophysical surveying. Each segment could be estimatedbasedon itsperformance. .

Drilling‐Therevenueofdrillingdependsonoperatingdaysandoperatingratesoftherigs(Revenuefromdrilling=operatingdays*averagedailyincome).Dayratesofdrillingrigsvariesaccordingtothetypeofrig,thehistoryofservice,andtheoperatingregion.COSLhastwomajortypesofdrillingrigs,namelyjack‐uprigsandsemi‐submersiblerigs,withdifferentdayratesof$117,000and$323,000in2013,respectively.Weestimatethatdayratesforjack‐uprigscontinuetorise,whilethatofsemi‐subrigsdecreaseslightlyfrom$323,000to$310,000in2014,duetothestablepricingpolicyandthemarkettrend.Consideringtheriskofoilpriceandtheestimatedcapitalexpenditurefrommajorclients,weassumetheoperatingdaysgrowingrateofjack‐uprigsat1.5%in2015and2.0%in2016,whileforsemi‐submersiblerigs,therateis10%for2015and15%in2016.. WellServices‐Weheldoptimisticattitudetowardstherevenuegrowthandestimatedagrowthrateof11.39%.Althoughperformanceofwellingwas influencedbystrategyadjustmentandoilaccidentin2010and2011,webelievethat futuretechnologybreakthroughandmarketexplorationwillbenefittotalrevenueinWellservicesegment.(Table10). MarineSupport&Transport‐Weestimatedthea10.66%growthrateinthissegmentfor2014basedontheanalysisofpastrevenueandresourceoptimization..Asof31Dec.2013,COSLownedanaggregateof69utilityvessels,including3oiltankersand4chemicalcarriers,whichmainlyoperateinoffshoreChina.(Figure12). GeophysicalSurveying‐AlthoughrevenueinGeophysicalsurveyingfluctuatedgreatlyinthepast5yearsduetoitsvulnerabilitytoextremeweathersandfleetmaintenance,weestimatedafuturegrowthrateof22.55%in2014foritshugepotentialtooperateindeepseaandfortheincreasingequipmentscale. .

ThetotalrevenueofCOSLcomposeofrevenuesfromabovefoursegments.Toarriveatareasonableforecastedrevenue,weproduceda10‐yearproformalforecastofallthese4segmentsandapplytheH

Inthefirststage,therevenuegrowthincreasesatanabnormalrate.Basedonourforecastandsumof4segments,therevenuegrowthof2015and2016is19.22%and18.36%.Andtheninthesecondstagewithlargerscaleandmuchfiercecompetitionfrom2017,revenuedeclineslinearlyfromtheabnormalratetothematuregrowthrateat4.42%until2023.Sincethen,therevenuegrowthwillstayatamatureand stable level at2.43%. .

OperatingExpense

Depreciation&Amortization‐Amongtheoperatingexpense,Depreciationofproperty,plantandequipment&Amortizationof intangibleassets takea largepartof it, given theequipment‐basedcharacteristicofoilserviceindustry.ThepercentageofD&Atakinguptotaloperatingexpenseisquite

SharePriceAndNewsFlow

Table9.ValuationResult

FreeFloatPercent 18.00%

DCF 22.64

Multiple 21.66

TargetPrice 22.46

Source:ThomsonReuters,Teamcomputations

Table10.WellServicesRevenueRevenue(mn

CNY) 2013A 2014E 2015E 2016E

Wellservice 6,638 7,394 8,913 11,810

yoy 33.29% 11.39% 23.58% 32.51%

Source:Companyreport,Teamestimates

Source:Companyreport,Teamestimates

13.3%

Source:Companyreport,Teamestimates

Source:Companyreport

stableinlast5years,withapeakvalueof6.74%andvalleyvalueof6.32%.BasedonthehistoricaldataofD&A,wegaveaforecastinamildgrowingtrend. . Salary‐Duetotheinternationalbusinessexpansion,COSLhasmoreinternationalstaffsworkingforit,especiallystaffsinCDE.WhiletheCOSLcontinuethemarketexplorationontheinternationalarena,weestimatethecompoundgrowthrateat14.89%inthefollowing10years.. SubcontractingExpense‐Strategyarrangementandadjustmenttouseoutsideresourcesinrecentyea rs ledmuch increase in subcontracting expense, aswell as leasing expense. In2013, thesubcontractingexpenseshadagrowthof38.5%.Weassumethesubcontractingexpensewillkeepinggrowingindrilling,wellingservicesandtransport..

FinancialExpenditureThemainlyinterestexpensecomesfromthelong‐termbondandlong‐termborrowings.Consideringthe1billionbondsinUSDwitharateof3.38%and1.5billionbondsinCNYwitharateof4.48%,wecomputedacompoundrateofthelong‐termdebt.Thefutureinterestexpenseisestimatedbasedonthecompound interestexpensesandother interestexpenses.The total financial expenditure isestimatedbasedonpastexchangeearnings(loss6.4millionCNYin2013,loss42.0millionCNYin2012)and interest revenue(gain124.6millionCNY in2013,gain127.5millionCNY in2012),other thaninterestexpense. .

TaxWeestimatethetaxrateat15%ofCOSLinthefuture10yearsaccordingtoChinesehi‐techenterprisespreferentialtaxpolicieswhichispublishedinOctober28th,2014bytheStateCouncil..

Asset PPE‐WeassumetheincreaseofPPEandtherevenueoflastyearhaveasignificantrelevance.Usingthedataof thepast6years,weconducteda regressionanalysisbetween therevenueand thenextyear’sPPE,andtheresultsareasinthegraphbelow,whichisrevisedaccordingtothedisclosureinthereportofQ32014.Weestimatedthefuturecompoundgrowthrateat5.51%fortenyears.(Figure13) AnnualReport‐ThelatestrepotofQ32014showsthattheaccountsreceivablesincreasedby60.0%comparedwith thebeginningof2014.The internationalbusiness contributes to theaccountsreceivables largely,due to themuch longer creditperiodand longer recognizingproceed.ThesuperiorityofaccountsreceivablesturnoverfromitsparentcompanyCNOCCwillbeweakenedsincethecomponentschange.Theaveragefutureaccountreceivableturnoverdayswillgraduallymoveto89days. .

CapitalExpenditureCapitalexpendituresremainedtobeconservative.OurestimatedstableCapEx/AssetsratioisjustifiedbysupplypressureofRigsintheglobalmarketandCOSL’s2014StrategicGuidance.ForJack‐Uprigs,daysrateswill remainunchangedorslightlydeclinedue topressure fromsupply,withexpectedadditionalnumberof40/61/36 in2014/15/16.As forSemi‐subrigs,weestimateanadditionof33/27/22 in2014/15/16, showingpressure fromsupplyaswell.Considering themarketpressurefromsupplyandtheBUY‐LEASE‐BUILDstrategyofCOSL,weexpectaconservativeCapEx/Assetsratioof0.06xduring2014F‐2018F,lowerthanglobalaverageof0.10x..

TerminalGrowthRateTerminalgrowthrateisbasedonChinesefutureexpectedinflationrate,whichisestimatedbyhistorical10yearsaverage.Meanwhile, considering theNominal risk freerateof returnandGDPgrowthestimation,wesettheterminalrateat2.43%.(Figure14).

WeightedAverageCostofCapital

Wequote the formulaWACC = wdrd(1–T)+wprp+wees tocalculateWACC,while there isnopreferredstock,sowesimplyuseWACC=wdrd(1–T)+wers.Inthisformula,the‘rs’wascomputedbyCAMPmethodrs=rRF(RiskFreeRate)+ *rmrp(MarketRiskPremium).(Table12).

rswasestimatedapproximatelyusingthe10yearsnationalbondrateat3.67%.MarketRiskPremiumisthoughttobetheaveragestockreturnratelessriskfreerate.AccordingtoThomsonReuters,theaveragereturnrateofAsharesis13.38%,thustheMarketRiskPremiumis9.71%.Weusethehistoricalaverage ofCOSLfromThomsonReuters,whichis0.93. .

.

.

Thecompoundrateofallthedebtisaround3.59%fromourcalculation.Targetcapitalstructureisestimatedfromthefinancialstatement,thus,wecomputedtheexpectedweightofequityat63.87%andweightofdebtat36.13%.Atlast,theWACCweuseis9.21%.

ToshowtheinfluenceofWACCandterminalratetotargetprice,wegivethechartabove.ThetargetpriceisfluctuatedastheWACCandTerminalRatechanges.

MultipleValuationBesidesDCFmethod,wealsousemultipleanalysis tocalculateamarket‐basedprice rangebycomparingtheCOSLwithitspeers. .

SensitivityAnalysis

1‐yearTargetSharePricesbyDCF(CNY)

TerminalRate

1.50% 2.00% 2.43% 3.00% 3.50% 4.00% 4.50%

WACC

8.50% 23.14 24.98 26.8 29.66 32.7 36.41 41.06

9.00% 20.72 22.26 23.78 26.12 28.57 31.51 35.11

9.21% 19.8 21.24 22.64 24.8 27.06 29.74 33

9.50% 18.61 19.92 21.19 23.13 25.14 27.52 30.37

10.00% 16.76 17.88 18.95 20.59 22.26 24.2 26.51

10.50% 15.12 16.09 17.01 18.39 19.8 21.41 23.3

11.00% 13.67 14.5 15.3 16.48 17.67 19.03 20.6

Source:Teamanalysis

z

Table12.ChinesePeers

Company Ticker

ChinaOilHBPScienceandTechnologyCorporationLtd.

002554‐SZ

LandOceanEnergyServicesCo.,Ltd.

300157‐SZ

TongOilToolsCo.,Ltd. 300164‐SZ

SinoGeophysicalCo.,Ltd. 300191‐SZ

JutalOffshoreOilServicesLimited 3303‐HK

AntonOilfieldServicesGroup 3337‐HK

SPTEnergyGroupInc. 1251‐HK

HilongHoldingLimited 1623‐HK

Source:Teamanalysis

Table11.WACCComputation

RiskFreeRate 3.67%

Beta 0.93 CostofDebt 3.59%

MarketRiskPremium

9.71% TaxRate 15.00%

CostofEquity 0.127CostofDebt(AT)

3.05%

WeightofEquity 63.87% WeightofDebt 36.13%

WACC 9.21%

Source:ThomsonReuters,Teamestimates

Figure14.ChinaInflationRate

Source:TradingEconomics

Table13.GlobalPeers

Market Company Ticker

OilService

BAKERHUGHESINCORPORATED

BHI‐US

HALLIBURTONCOMPANY HAL‐N

SchlumbergerN.V. SLB‐N

OffshoreDrilling

NOBLECORPORATIONPLC NE‐N

ROWANCOMPANIESPLC RDC‐N

DIAMONDOFFSHOREDRILLING,INC.

DO‐US

Transocen RIG‐N

SEADRILLLIMITED SDRL‐N

ENSCOPLC ESV‐N

OilfieldEquipmentProviders

WEATHERFORDINTERNATIONALPUBLIC

LIMITEDCOMPANYWFT‐N

CAMERONINTERNATIONALCORPORATION

CAM‐N

Source:Teamanalysis

Source:Companyreport,Teamestimates

Figure13.RegressionAnalysisofPPE

Throughtheanalysisinsectionofindustryoverviewandcompetitivepositioning,wefindCOSLisataspecialmarketposition inChineseOilfieldService Industry. It isdifficult to findaChineseOFScorporationshowingsimilarmarketmultipledata.WeconsiderthoseChineseandglobalcompaniesthathavesimilarbusinessasmanyaspossible.Bytrailingthehistoricalmarketdata,wecanputCOSLintoareasonablepositioninthosepeersintermsofmarketmultiples..

PeerstoCompareChinesepeersare8companiesinvolvedinoffshoreOFSinChineseA‐shareandH‐sharestockmarket,amongwhich4arefromA‐shareandtheother4fromH‐share.Globalpeersare11internationalOFScompanieswith leadingpositionand typical representativeness fromthreeOFS industry segments,amongwhich3arefromoilservice,6fromoffshoredrillingandtheother2fromoilfieldequipmentproviders.(Table12,13).

MultiplestoConsiderWechooseenterprisemultiplesandpricemultiplesasfollowstosurveyCOSL.

EV/Sales (Enterprisevalue‐to‐salesratio)compares the totalvalueof company to its revenues.EV/EBITDA,whichiscapitalstructure‐neutralandcanbeusedtodirectlycomparecompanieswithdifferentlevelsofdebt.EV/EBIT,whichissimilarwiththeformerbutfurtherconsiderstheimpactofD&A.(Table14).,

P/E(price‐to‐earningsratio),definedasmarketpricepersharedividedbyannualearningspershare.P/B,whichiscomparingmarketpricetobookvalue.PEG(P/Etogrowthratio)isavaluationmetricfordeterminingtherelativetrade‐offbetweentheprice, theEPSandtheexpectedgrowth,which iscalculatedwithP/EdividedbyannualEPSgrowth.(Table15) .

MultipleValuationAccording toouranalysisof themultiplesabove,we findCOSLasa large‐capcompany inA‐sharemarket,istreatedandexpecteddifferentlyfromotherChineseOFScompaniesbymarket.Andrelatively,thelevelofmarketexpectationsonCOSLapproachesthatofglobalpeersinourpackage.ItsmultiplesarenearlyclosetotheMeanorMedianofglobalpeers.Therefore,wemainlyusetheexpectationofglobalOFSmarket toapproximate the futuremultiplesofCOSL. .

Theglobalpeers’EV/EBITDAmultiplesTTM(Mean7.44x,Median7.30x)showarisingtrendcomparedtothedatainFY1(Mean6.81x,Median6.52x)andFY2(Mean6.35x,Median6.13x).SoweassumetheEV/EBITDAofCOSLinthenextoneyearwillrangefrom7.29x(COSLEV/EBITDATTM)to7.44x(GlobalPeersMeanTTM).Withourpreviouscomputationsandestimates,theEBITDAinthenextyearwillbe14.75billionCNY(Appendix).Weobtainarangeofenterprisevaluefrom107.52to109.73billionCNY.Divided by shares outstanding,we obtain a price of 22.53‐23.00 CNY,with amedian of22.78. .

Theglobalpeers’P/EmultiplesTTM(Mean12.06x,Median13.54x)arealsohigherthantheearlierdatainFY1(Mean11.13x,Median11.86x)andFY2(Mean10.10x,Median10.61x).Accordingtothehistoricaldata,theP/EratiosofCOSLareusuallylowerthantheMeanvalueofglobalpeers.Weassumethisratiowillincreaseinthenextoneyearwitharangefrom10.25x(COSLP/ETTM)to12.06x(GlobalpeersmeanTTM).TheestimatedEPSnextyearis1.84CNY.(Appendix)Aftercomputation,weobtainapriceof18.86‐22.19CNY,withamedianof20.53CNY..

Weapplytheaveragevalue21.66CNYofthemedianpriceofEV/EBITDAmethod(22.78CNY)andthemedianpriceofP/Emethod(20.53CNY)asourone‐yeartargetpricebymultipleanalysis..

FinancialAnalysis

EV/EBITDAMultiple PriceRange(CNY) P/EMultiple PriceRange(CNY)

LowerLimit 7.29x 22.53 10.25x 18.86

UpperLimit 7.44x 23 12.06x 22.19

Median 22.78 20.53

Source:Teamanalysis

Table14.HistoricalEVmultiples

COSLChinesePeers GlobalPeers

Mean Median Mean Median

EV/SalesFY1

2.88 3.9 2.39 2.28 2.19

EV/SalesFY2

2.69 2.56 2.14 2.17 1.97

EV/EBITDAFY1

7.08 14.27 7.24 6.81 6.52

EV/EBITDAFY2

6.77 9.2 6.77 6.35 6.13

EV/EBITFY1

9.88 22.03 15.32 10.41 10.34

EV/EBITFY2

9.55 14.33 12.37 9.52 9.22

Source:ThomsonReuters

Table15.HistoricalPricemultiples

COSLChinesePeers GlobalPeers

Mean Median Mean Median

P/EFY1

10.36 28.98 19.5 11.13 11.86

P/EFY2

10.02 22.53 13.96 10.1 10.61

P/B 1.9 3.45 3.85 1.78 1.56

PEGFY1

0.86 3.87 0.99 0.96 0.6

PEGFY2

1.4 1.73 1.22 0.68 0.61

Source:ThomsonReuters

KEYRATIOS 2012A 2013A 2014E 2015E 2016E 2017E 2018E

Profitability

EBITDAMargin 40.90% 41.70% 39.70% 38.10% 37.10% 36.00% 35.30%OperatingProfitMargin 25.20% 27.80% 25.60% 25.90% 25.80% 25.40% 25.30%NetMargin 20.50% 24.40% 21.70% 21.50% 21.50% 21.30% 21.30%ReturnonAssets 6.10% 8.50% 6.90% 7.30% 7.70% 7.90% 8.20%ReturnonEquity 14.20% 18.00% 16.00% 16.50% 17.00% 17.00% 17.00%

Liquidity

CurrentRatio 2.8 1.7 3.3 3.6 3.9 4.1 4.4QuickRatio 2.7 1.6 3.2 3.5 3.7 4.0 4.3CashRatio 1.2 0.8 0.9 1.0 1.1 1.2 1.2

Efficiency

CashConversionCycle ‐23 ‐32 ‐25 ‐11 1 9 16DaysinReceivable 67 66 74 78 83 85 86DaysinPayable 105 112 113 104 97 91 85DaysinInventory 15 13 14 15 15 15 15FixedAssetTurnover 48% 56% 61% 68% 74% 80% 85%CFO/EBIT 146.90% 103.70% 117.50% 114.70% 111.70% 113.70% 116.80%CFO/CapEx 239.90% 109.60% 167.70% 165.00% 167.20% 183.50% 204.90%CapEx/Assets 5.60% 10.90% 6.40% 6.60% 6.60% 6.30% 6.00%

Solvency

Long‐termDebttoAssets 46% 37% 44% 44% 43% 42% 41%DebtRatio 57% 53% 57% 56% 55% 53% 52%InterestCoverage 11.6 12.8 9.9 10.4 11.1 11.8 12.5

ShareholderRatios

EarningsperShare 1.01 1.49 1.56 1.84 2.18 2.52 2.88DividendPayoutRatio 30.56% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55%

SustainableEarningGrowthDrivenbyCoreBusinessTherealizedrevenueCAGRinyears2010‐2013was15.93%,andthis impressiveresultwasmainly

drivenbydrillingbusinesswhichaccountedfornearly53.59%oftotalrevenue.Webelievethistrend

willremainstableinfutureyears,consideringtheactiveexplorationactivitiesofCOSL’smajorclients(CNOOC,StatoilandConocoPhillips).Besides,technologybreakthroughssupportedbycontinuousR&D

expenseinWellservicessegmentwillcontributetoamid‐tolong‐termgrowthpotential.Whilethe

volumeof3Doperationgrewaverage45%forlastthreeyears,thetotalrevenueofGeophysicalserviceshadsufferedfromthechangeofweathers&seaconditions.

Ingeneral,weexpectrevenuetobe32.43billionCNY/38.67billionCNYin2014/2015,showingyear

toyearoverallgrowthrateof17.82%/19.22%.AccordingtosegmentCAGRfrom2010to2013,we

expect20.92%,11.39%,22.55%and17.82%growth inDrilling,Well Service,MarineSupport&Transport,andGeophysicalsurveyingsegment,respectively..

CrucialDrivesInDrillingBusiness

RevenueofDrillingbusinessishighlydependentontheexplorationactivitiesandcapitalexpenditures

ofCOSL’smajorclients,amongwhichCNOOCaccountedfor65%/62%ofthetotaloperatingrevenueofCOSLin2012/2013.CNOOCisastate‐ownoilcompanyinChina,rankingthirdinoverallscaleand

firstinoceanoilmarket.CNOOChasachieveda6.8%growthinoil&gasproductionin1H2014,and

withthediscoveryofgiantgasreservoirstructureinEastChinaSea,webelievethatthecompanywillenjoy a sustainable growth in thenear future. In addition,COSLhasbuilt up long‐termgood

relationshipswithitsclients,winningmultipleawardsforitshighqualityservices.Stablepricingpolicy

and improvingutilizationrateof Jack‐UprigsandSemi‐subrigsprovidea solidground for risingrevenue.ThehistoricaldayratesofCOSLrevealastablepricingpolicy,especiallywhentheglobalJack‐

Updayratesdeclineddramaticallyin2008,ratesofCOSLremainedthesame.Ontheotherhand,day

ratesofCOSLshowapricediscountswhencomparedtoitsglobalpeers.It’spossiblethatCOSLofferdiscounts to CNOOC in exchange for high rates of uti l ization (92~95% in 1Q2013 ~

3Q2014).(Figure15,16). .

CompetitiveMarginsRemainedStableIntheLong‐TermMarginshavebeenstableduetothenatureofitscorebusinesswithOperatingProfitMarginabove25%

during2012‐2013.During2014F‐2019F,weforecastCOSL’sOperatingMarginovertotalrevenuestobeatarangeof25.31%to25.88%.Inthelongrun,weanticipateROAimprovesfrom6.93%to8.57%

byhigheroperatingefficiency.Also,ourforecastresultshowshighearningsqualityasrepresentedby

113.7%to117.5%CFO/EBITduring2014E~2019E.(Figure17). .

CapitalExpendituresRemainedtoBeConservativeTosupportthegrowthinrevenue,COSLisexpectedtomakecapitalexpendituresthatwillbothenhanceoperatingdaysandmeanwhileimproveoperationefficiency.OurestimatedstableCapEx/Assetsratio

is justifiedbysupplypressureofRigs in theglobalmarketandCOSL’s2014StrategicGuidance.

LimitedroomforrisingdayratesisnotfavorablefornewconstructionofRigs.ForJack‐Uprigs,daysrateswillremainunchangedorslightlydeclineduetopressurefromsupply,withexpectedadditional

numberof40/61/36 in2014/15/16.As forSemi‐subrigs,weestimateanadditionof33/27/22 in

2014/15/16,showingpressurefromsupplyaswell.ConsideringthemarketpressurefromsupplyandtheBUY‐LEASE‐BUILDstrategyofCOSL,weexpectaconservativeCapEx/Assetsratioof0.06xduring

2014F‐2018F,lowerthanglobalaverageof0.10x. .

WealsoexpectCOSLtomakefulluseofitsinvestmentsandthereforeforecastitsFixedAssetTurnovertoimprovefrom0.48xduring2012‐2013to0.61xduring2014F‐2018F.ThisisevidencedbyCOSL’s

improvingratesofutilizationinDrillingsegments. .

StrongCashGeneratingAbilityAndFlexibilityInFinancingWeexpectCOSLtocontinuallyproducepositiveOperatingCashFlowsbecauseofitssolidperformance.

Anotherstrongindicatorofthecompany’sfavorablecashpositionisitsabilitytofinancemostofitscapitalexpendituresfrominternallygeneratedfunds.Thecompany’sCFO/CAPEXhasbeenat240%

in2012and110%in2013.Thesestrongcash flowsalso led to improvingcapital structure,witha

decreasingtrendinbothLong‐TermDebttoAssetsandDebtratioandanincreasinginterestcoveragefrom9.88xto12.54xinthefollowing5years,whichinturnprovidesthecompanyfinancialflexibility.

CapitalExpenditureofMajorClients

Company 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A

CNOOC‐CNY(mnUSD) 17,470 44,217 26,862 37,321 43,434 39,224 51,764 62,678 86,717

Statoil‐NOK(mnNOK) 31,389 39,486 63,785 58,529 67,152 66,710 85,072 96,000 103,300

ConocoPhillips‐USD(mnUSD) 11,620 15,596 11,791 19,099 10,861 9,761 13,266 14,172 15,537

BP‐USD(mnUSD) 12,281 15,125 17,830 22,658 20,650 18,421 17,845 23,078 24,520

RoyalDutchShell‐USD(mnUSD) 15,637 22,922 24,576 35,065 26,516 26,940 26,301 32,576 40,145

Chevron‐USD(mnUSD) 8,701 13,813 16,678 19,666 19,843 19,612 26,500 30,938 37,985

PetroChina‐CNY(mnCNY) 119,227 130,409 172,511 215,416 257,562 259,120 267,975 311,744 304,100

Source:Companyreport.

Source:DeutscheBank,Companydata

Source:Teamestimates.

12.1%

Source:Teamestimates

However,weforecastdeteriorationofcashconversioncyclewithfollowingdrives:overseabusiness

expansionandprolongedbusinessprocessofsomeclients.Thisisshownbylongerdaysreceivablesandshorterdayspayable.Even though,COSLstillhasasignificantadvantage incashcyclewhen

comparedtoitsglobalpeers. .

DuPontanalysis‐driversofprofitabilityIntheanalyzedhistoricalperiod,thereturnonequitywasfairabove14%(2012ROE14.2%,2O13

ROE18.1%).Previously,themaindriversoftheprofitabilitywerenetincomemarginandtotalassetsturnover.OuranalysisindicatetheROEforecasts(2014EROE16%,2015E16.5%,2016E17%)will

continuetorisemainlyduetothehighertotalassetsturnover. .

We forecastROE in2018E tobe17.0%.DuPontanalysis suggests themost importantdriver forsustainingfuturelevelofreturnonequitytobetotalassetsturnover,calculatedasratiooftotalrevenue

dividedby total assets.Hence,weconclude forecast increaseof thebetterutilizationofCompany’s

resources(increaseinsalesduetolargerassetbasewillbebiggerthanthegrowthoftheassetbaseitself).(Figure18) .

InvestmentRisksImpactandlikelihoodofthefollowingrisksarepresentedinFigure19.

DemandforCOSL’sservicemainlydependsonthelevelofexpendituresonoilandgasexploitationfromitsclients,especiallyon theoffshoreoildevelopment.And theseexpendituresaregenerallydependentontheindustry’sviewoffutureoilandnaturalgaspriceandaresensitivetotheindustry’sviewoffutureeconomicgrowth. .

RegulatoryRisk|Demandforhydrocarbonsandeconomicgrowth(RR1)Thedemand forhydrocarbons is affectedbygeneraleconomicandbusinessconditions. Ifglobaleconomykeepslow,wemightseesharpdeclineinCOSL’sinternationalbusinessandweakdomesticeconomygrowthwillalsoharmthecompany’sbusiness.InconclusionincreasingfuturedemandwillstronglydriveCOSL’sbusiness,otherwise,causereduction..

RegulatoryRisk|StabilityofOPECandnon‐OPECcountries(RR2)Theoilpriceisbasicallydecidedbythesupplyanddemandrelationandpublicconsensusexpectationoffutureoilpricetrend.Onthesupplyside,thestabilityandunityofOPECcountriesensuresstablerelatively‐highoilpricebut the increasinggrowthofnon‐OPECcountriescausesdisorder.Only thestabletotalingoutputofOPECandnon‐OPECensuresstableoilprice..

MarketRisk|Technologybreakthroughsindeep‐seaoilexploitation(MR1)The technicalbottleneck isa strongconstraint foroil andexploitation, especially fordeep‐seaexploitation. IfCOSL fails tomaintain leadingposition inR&D, itmight losecompetitiveness in theprofitabledeep‐seabusiness.Besides, shaleoil, alternative foroil, is alsoexpecting technologybreakthroughs. .

MarketRisk|Currencyexchangeandtaxpolicies(MR2)Different tax policies influences international operation of COSLand itssubsidiaries.Andthefluctuationofcurrencyexchangemightcausenegligentloss..

OperationalRisk|Operationaccidentsandweatherconditions(OR1)Offshorebusiness is strongly influencedby severeweatherconditionandaccidentsmightcausebusinessinterruptionandfurtherinfluencetotalrevenues.Moreover,severeaccidents,likeoilspills,mightevenfacegovernmentsanctions. .

OperationalRisk|Politicaluncertaintyandgeopoliticalunrest(OR2)In2013,over30%of thecompany’s revenue is fromoutsideChina,whichmeans thatgeopoliticalunrest (ISIS)might interfereoperation inregions, likeMiddleEast,and further influence futurebusiness. Besides that, the different policies might also get in the way of COSL’sinternationalization. .

LegalRisk|Lawissuesandpatentprotection(LR)COSLwitnessedseveral legal issuesduring theM&AofCDE,whichcaused losson thecompany’srevenue.Withtheexpansionininternationalmarket,thecompanyisundertheriskofcomingacrosslegalcontroversialbothinbusinessinteractionandtechnologyexportinandout..

Source:Teamanalysis

Figure19.RiskMatrix

Figure18.DuPontAnalysis

Source:Teamanalysis

Appendix1:COSLStatementofFinancialPosition

In1,000CNY 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

CurrentAsset

Cashandcashequivalent

9,814,893 9,600,797 11,555,481 13,776,445 16,305,800 18,974,856 21,702,966 24,391,149 26,926,609 29,189,454 31,061,228 32,434,522

Timedeposit(morethan3m)

3,954,185 600,000 995,056 1,186,306 1,404,112 1,633,947 1,868,868 2,100,351 2,318,682 2,513,539 2,674,719 2,792,975

NoteReceivables 619,940 1,513,375 1,532,446 1,826,982 2,162,416 2,516,376 2,878,168 3,234,666 3,570,909 3,870,999 4,119,227 4,301,349

AccountsReceivable 4,145,236 5,872,980 7,217,699 9,378,260 11,441,260 13,314,051 15,228,279 17,114,491 18,893,543 20,481,309 21,794,673 22,758,270

Inventory 948,850 1,051,527 1,420,945 1,694,050 2,005,078 2,333,284 2,668,752 2,999,310 3,311,088 3,589,344 3,819,511 3,988,381

Advancestosuppliers,margindepositandotherreceivables

650,588 426,855 895,025 1,067,049 1,262,959 1,469,690 1,680,994 1,889,206 2,085,589 2,260,857 2,405,835 2,512,203

Pledgeddeposit 30,755 32,630 65,742 78,377 92,768 107,952 123,473 138,767 153,192 166,066 176,715 184,528

Classifiedasassetforsale

‐ 129,128 14,630,206 17,442,131 20,644,507 24,023,754 27,477,770 30,881,235 34,091,339 36,956,290 39,326,112 41,064,818

Othercurrentasset 2,058,997 2,363,446 2,474,144 2,660,200 2,879,666 3,109,752 3,343,294 3,571,641 3,784,868 3,972,219 4,123,958 4,231,180

TotalCurrentAsset 22,223,444 21,590,738 40,786,744 49,109,800 58,198,565 67,483,662 76,972,564 86,320,816 95,135,820 103,000,077 109,501,977 114,268,225

Non‐currentAsset

PPE 47,075,676 51,292,406 55,103,432 59,247,210 64,135,105 69,259,500 74,460,888 79,546,567 84,295,497 88,468,124 91,847,606 94,235,644

Goodwill 4,234,831 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763 4,107,763

Otherintangibleassets

371,178 393,220 446,021 479,561 519,125 560,603 602,705 643,869 682,308 716,083 743,437 762,766

Investmenttojoint‐ventureandpartnership

508,845 710,465 771,448 829,461 897,891 969,633 1,042,452 1,113,652 1,180,137 1,238,554 1,285,866 1,319,299

Definedbenefitplan 14,864 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Defferedtaxasset ‐ 7,254 3,357 2,359 726 1,793 3,649 1,448 1,802 4,649 165 2,428

Othernon‐currentasset

219,690 1,160,437 400,183 430,276 465,774 502,990 540,764 577,698 612,187 642,490 667,033 684,376

TotalNon‐currentAsset 52,425,084 57,671,545 60,832,204 65,096,630 70,126,384 75,402,282 80,758,222 85,990,997 90,879,694 95,177,662 98,651,871 101,112,277

TotalAsset 74,648,528 79,262,283 101,618,947 114,206,431 128,324,949 142,885,944 157,730,785 172,311,813 186,015,514 198,177,739 208,153,848 215,380,502

CurrentLiability

Tradeandotherpayables

5,021,791 7,159,326 7,720,782 8,562,613 9,446,099 10,251,332 10,934,828 11,399,456 11,571,765 11,388,217 10,791,810 9,753,402

Accruedsalaryandbonus

914,435 1,210,005 1,451,876 1,610,181 1,776,318 1,927,740 2,056,270 2,143,643 2,176,045 2,141,529 2,029,376 1,834,106

Taxpayable 266,693 258,220 251,002 278,370 307,092 333,270 355,491 370,596 376,198 370,230 350,841 317,083

STInterest‐bearingbankborrowings

1,659,906 3,803,582 2,759,795 2,864,211 3,159,739 3,429,091 3,657,722 3,813,141 3,870,778 3,809,381 3,609,882 3,262,532

OtherCurrentLiability

60,219 112,876 120,580 133,727 147,525 160,100 170,775 178,031 180,722 177,856 168,541 152,324

TotalCurrentLiability 7,923,044 12,544,009 12,304,035 13,645,599 15,053,544 16,336,784 17,426,020 18,166,463 18,441,059 18,148,553 17,198,104 15,543,270

Netcurrentasset 14,300,400 9,046,729 28,482,709 35,464,202 43,145,021 51,146,879 59,546,544 68,154,353 76,694,761 84,851,523 92,303,873 98,724,955

Totalassetlesscurrentliability

66,725,484 66,718,274 89,314,913 100,560,832 113,271,405 126,549,161 140,304,765 154,145,350 167,574,455 180,029,186 190,955,744 199,837,232

Non‐currentLiability

Defferedtaxliability 1,688,281 1,128,733 2,306,540 2,558,032 2,821,969 3,062,528 3,266,718 3,405,523 3,457,000 3,402,166 3,223,993 2,913,774

LTInterest‐bearingbankborrowings

23,992,139 19,489,968 29,339,551 32,538,573 35,895,886 38,955,831 41,553,166 43,318,788 43,973,575 43,276,081 41,009,690 37,063,660

Long‐termbond 7,717,913 7,536,622 11,284,443 12,514,836 13,806,110 14,983,012 15,981,987 16,661,072 16,912,913 16,644,647 15,772,958 14,255,254

Defferedincome 1,122,237 1,265,669 2,153,072 2,387,831 2,634,206 2,858,759 3,049,363 3,178,933 3,226,984 3,175,799 3,009,480 2,719,902

Othernon‐currentliability

‐ 37,479 54,165 60,071 66,269 71,918 76,714 79,973 81,182 79,894 75,710 68,425

Totalnon‐currentliability

34,520,570 29,458,471 45,137,771 50,059,344 55,224,441 59,932,047 63,927,948 66,644,289 67,651,654 66,578,586 63,091,831 57,021,016

TotalLiability 42,443,614 42,002,480 57,441,805 63,704,942 70,277,985 76,268,831 81,353,968 84,810,752 86,092,713 84,727,139 80,289,936 72,564,286

Netasset 32,204,914 37,259,803 44,177,142 50,501,488 58,046,964 66,617,113 76,376,817 87,501,061 99,922,801 113,450,599 127,863,912 142,816,216

Stockholder'sEquity

Capitalstockissued 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320

Reserve 27,698,590 32,743,342 37,503,851 43,432,095 50,500,862 58,602,550 67,859,068 78,422,928 90,273,201103,269,14

5117,220,75

2131,825,27

1Proposedyear‐enddividends

‐ 2,146,363 2,531,999 2,998,240 3,456,235 3,948,953 4,498,870 5,059,870 5,581,258 6,032,496 6,369,815

Minorityequity 11,004 21,141 31,608 42,075 52,542 63,009 73,476 83,943 94,410 104,877 115,344 125,811

Totalowner'sequity 32,204,914 37,259,803 44,177,142 50,501,488 58,046,964 66,617,113 76,376,817 87,501,061 99,922,801 113,450,599 127,863,912 142,816,216

Totalliabilityandequity

74,648,528 79,262,283 101,618,947 114,206,431 128,324,949 142,885,944 157,730,785 172,311,813 186,015,514 198,177,739 208,153,848 215,380,502

Appendix2:COSLStatementofComprehensiveIncome

In1,000CNY 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenue 22,104,699 27,363,812 32,240,043 38,436,580 45,493,536 52,940,259 60,551,744 68,051,835 75,125,823 81,439,210 86,661,499 90,493,020

Otherrevenue 174,043 163,306 192,407 229,388 271,503 315,945 361,370 406,130 448,348 486,026 517,192 540,058

TotalRevenue 22,278,742 27,527,118 32,432,450 38,665,967 45,765,039 53,256,204 60,913,115 68,457,965 75,574,171 81,925,235 87,178,691 91,033,079

OperatingExpense

Depreciation&Amortization

(3,173,463) (3,310,618) (3,658,987) (3,934,143) (4,258,709) (4,598,980) (4,944,364) (5,282,064) (5,597,403) (5,874,474) (6,098,879) (6,257,450)

Salarycost (3,671,357) (4,080,092) (5,417,114) (6,554,948) (7,872,849) (9,294,677) (10,783,301) (12,290,093) (13,567,648) (14,707,839) (15,650,980) (16,342,949)

Fixingandmaintenancecost

(793,854) (930,115) (1,046,965) (1,184,944) (1,346,837) (1,523,709) (1,712,600) (1,909,118) (2,107,387) (2,211,703) (2,296,190) (2,355,891)

Consumptionofsuppliesandservices

(4,071,683) (4,897,780) (5,937,911) (7,079,177) (8,378,914) (9,750,438) (11,152,307) (12,533,659) (13,836,533) (14,999,321) (15,961,152) (16,666,835)

SubcontractingExpense

(2,825,522) (3,913,722) (4,686,536) (5,973,948) (7,528,415) (9,293,284) (10,964,361) (12,322,434) (13,603,351) (14,746,542) (15,692,164) (16,385,954)

Expenditureonopeartinglease

(709,645) (1,093,744) (1,228,807) (1,380,460) (1,558,483) (1,752,265) (1,958,321) (2,171,621) (2,385,563) (2,592,116) (2,782,982) (2,949,576)

Otheroperatingexpenditures

(1,318,181) (1,652,789) (1,770,931) (2,111,304) (2,498,939) (2,907,984) (3,326,079) (3,738,056) (4,126,627) (4,473,418) (4,760,276) (4,970,740)

OtherSG&A ‐ ‐ (269,189) (320,928) (379,850) (442,026) (505,579) (568,201) (627,266) (679,979) (723,583) (755,575)

AssetimpairmentlossonPPE

(96,420) ‐ (112,289) (120,733) (130,693) (141,135) (151,735) (162,098) (171,775) (180,278) (187,165) (192,031)

Totalopeatingexpense

(16,660,125) (19,878,860) (24,128,727) (28,660,583) (33,953,689) (39,704,499) (45,498,647) (50,977,344) (56,023,553) (60,465,672) (64,153,372) (66,877,000)

Operatingprofit 5,618,617 7,648,258 8,303,723 10,005,384 11,811,350 13,551,705 15,414,467 17,480,621 19,550,618 21,459,563 23,025,318 24,156,079

Financialrevenue/expenditure

Exchangeearnings,net (41,913) (6,403) 16,941 7,728 (5,114) 2,712 4,853 (661) 4,038 (13,931) 8,031 (5,861)

Financialexpense (512,718) (638,328) (933,223) (1,034,977) (1,141,765) (1,239,095) (1,321,710) (1,377,871) (1,398,698) (1,376,512) (1,304,424) (1,178,910)

Interestrevenue 127,460 124,555 486,089 340,836 403,914 468,355 534,211 599,091 660,269 714,849 759,974 793,053

Fiancialexpenditure,net

(427,171) (520,176) (430,193) (686,413) (742,965) (768,027) (782,646) (779,441) (734,391) (675,594) (536,418) (391,717)

Investmentincome 2,169 94,302 111,107 132,461 156,781 182,444 208,675 234,522 258,901 280,658 298,655 311,860

Thejoint‐venturecompanyprofitattributable

243,193 297,221 305,299 328,257 355,338 383,730 412,548 440,725 467,036 490,155 508,879 522,109

Incomebeforetax 5,436,808 7,519,605 8,289,935 9,779,689 11,580,504 13,349,852 15,253,044 17,376,428 19,542,164 21,554,782 23,296,434 24,598,331

Incometax 867,038 793,171 1,243,490 1,466,953 1,737,076 2,002,478 2,287,957 2,606,464 2,931,325 3,233,217 3,494,465 3,689,750

Netincome 4,569,770 6,726,434 7,046,445 8,312,736 9,843,428 11,347,374 12,965,088 14,769,964 16,610,839 18,321,565 19,801,969 20,908,582

Attributeto:

Shareholdersofthecompany

4,559,354 6,715,967 7,025,737 8,288,048 9,814,207 11,313,370 12,926,195 14,726,253 16,562,585 18,269,256 19,746,306 20,850,457

Minorityinterestincome

10,416 10,467 20,708 24,688 29,221 34,004 38,893 43,710 48,254 52,309 55,663 58,124

BasicanddilutedEPS 1.01 1.49 1.56 1.84 2.18 2.52 2.88 3.28 3.68 4.06 4.39 4.64

Appendix3:COSLStatementofCashFlow

In1,000CNY 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Netprofit(loss) 4,569,770 6,726,434 7,046,445 8,312,736 9,843,428 11,347,374 12,965,088 14,769,964 16,610,839 18,321,565 19,801,969 20,908,582

D&A 3,173,463 3,310,618 3,658,987 3,934,143 4,258,709 4,598,980 4,944,364 5,282,064 5,597,403 5,874,474 6,098,879 6,257,450

ChangeinNetWorkingCapital

16,020,525 12,834,059 3,898,819 4,483,627 4,808,044 4,923,017 5,200,640 5,377,682 5,394,586 5,223,336 4,860,027 4,294,980

Other (15,024,901) (14,407,925) (3,766,107) (4,327,506) (4,702,445) (4,280,211) (3,744,850) (3,301,235) (3,200,643) (3,155,092) (2,843,006) (196,534)

NetCashFlowfromOperating

8,738,857 8,463,186 10,838,144 12,403,000 14,207,736 16,589,160 19,365,242 22,128,475 24,402,185 26,264,283 27,917,869 31,264,478

CashpaidtoacquirePPE

(3,642,916) (7,720,593) (5,913,955) (7,205,194) (8,369,990) (8,550,763) (8,882,033) (9,298,798) (9,378,100) (8,989,699) (8,974,538) (7,871,268)

Additions 0 (735,692) (549,021) (310,762) (129,042) (490,776) (568,430) (385,609) (325,867) (487,054) (35,278) (434,560)

Disposals 32,695 126,586 75,430 87,024 102,547 189,432 253,689 130,765 239,043 367,854 395,510 285,549

Otherinvestments

(4,805,205) 3,544,371 (2,128,907) (1,761,000) (1,705,356) (1,450,760) (1,529,549) (1,527,985) (1,685,532) (2,096,743) (2,840,569) (1,543,287)

NetCashFlowfromInvesting

(8,415,426) (4,785,328) (8,516,453) (9,189,932) (10,101,841) (10,302,867) (10,726,323) (11,081,627) (11,150,456) (11,205,642) (11,454,875) (9,563,566)

Changeindebt&preferredstock

(917,348) (1,636,033) 0 0 0 0 0 0 0 0 0 0

Issuance 0 0 4,542,000 0 0 0 0 0 0 0 0 0

DividendsPaid (810,683) (1,394,215) (2,051,785) (2,146,363) (2,531,999) (2,998,240) (3,456,235) (3,948,953) (4,498,870) (5,059,870) (5,581,258) (6,032,496)

Other 5,660,889 (663,180) 0 0 0 0 0 0 0 0 0 0

NetCachFlowfromFinancing

3,932,858 (3,693,428) 2,490,215 (2,146,363) (2,531,999) (2,998,240) (3,456,235) (3,948,953) (4,498,870) (5,059,870) (5,581,258) (6,032,496)

Cashandcashequivalentsonthebeginningoftheyear

5,646,159 9,814,893 9,600,797 11,555,481 13,776,445 16,305,800 18,974,856 21,702,966 24,391,149 26,926,609 29,189,454 31,061,228

ChangeinCashandcashequivalents(less)/add

4,256,289 (15,570) 4,811,906 1,066,705 1,573,897 3,288,053 5,182,684 7,097,895 8,752,858 9,998,771 10,881,737 15,668,415

Effectofforeignexchangeratechangesoncash

(87,555) (198,526) (2,857,221) 1,154,258 955,458 (618,997) (2,454,574) (4,409,712) (6,217,398) (7,735,927) (9,009,963) (14,295,121)

Cashandcashequivalentsattheendoftheyear

9,814,893 9,600,797 11,555,481 13,776,445 16,305,800 18,974,856 21,702,966 24,391,149 26,926,609 29,189,454 31,061,228 32,434,522

Appendix4:COSLStatementofRetainedEarnings

In1,000CNY 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Issuedcapital 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320 4,495,320

Capitalreserve 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565 8,074,565

Statutoryreservefunds

2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656 2,508,656

Revaluationreserve

0 35,907 35,907 35,907 35,907 35,907 35,907 35,907 35,907 35,907 35,907 35,907

Remeasurementofdefinedbenefitpensionplan

0 (50,965) (50,965) (50,965) (50,965) (50,965) (50,965) (50,965) (50,965) (50,965) (50,965) (50,965)

Exchangefluctuationreserve

(569,493) (832,101) (1,045,543) (1,258,985) (1,472,426) (1,685,868) (1,899,310) (2,112,752) (2,326,193) (2,539,635) (2,753,077) (2,966,519)

Retainedprofits 16,291,312 20,955,494 25,834,869 31,590,918 38,406,885 46,264,020 55,241,263 65,468,646 76,971,361 89,659,359 103,373,169117,853,81

1

Proposedfinaldiv.

1,393,549 2,051,785 2,146,363 2,531,999 2,998,240 3,456,235 3,948,953 4,498,870 5,059,870 5,581,258 6,032,496 6,369,815

Total 32,193,909 32,743,341 37,503,851 43,432,095 50,500,862 58,602,550 67,859,068 78,422,928 90,273,201 103,269,145

117,220,752 131,825,271

Non‐controllinginterests

11,004 21,141 31,608 42,075 52,542 63,009 73,476 83,943 94,410 104,877 115,344 125,811

Totalequity 32,204,913 37,259,802 79,534,631 91,401,585 105,549,586 121,763,429 140,286,933 161,425,118 185,136,132 211,138,487 239,052,167 268,271,672

Appendix5:COSLCommon‐sizeStatementofFinancialPosition

2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

CurrentAsset

Cashandcashequivalent 13.15% 12.11% 11.37% 12.06% 12.71% 13.28% 13.76% 14.16% 14.48% 14.73% 14.92% 15.06%

Timedeposit(morethan3m)

5.30% 0.76% 0.98% 1.04% 1.09% 1.14% 1.18% 1.22% 1.25% 1.27% 1.28% 1.30%

NoteReceivables 0.83% 1.91% 1.51% 1.60% 1.69% 1.76% 1.82% 1.88% 1.92% 1.95% 1.98% 2.00%

AccountsReceivable 5.55% 7.41% 7.10% 8.21% 8.92% 9.32% 9.65% 9.93% 10.16% 10.33% 10.47% 10.57%

Inventory 1.27% 1.33% 1.40% 1.48% 1.56% 1.63% 1.69% 1.74% 1.78% 1.81% 1.83% 1.85%

Advancestosuppliers,margindepositandotherreceivables

0.87% 0.54% 0.88% 0.93% 0.98% 1.03% 1.07% 1.10% 1.12% 1.14% 1.16% 1.17%

Pledgeddeposit 0.04% 0.04% 0.06% 0.07% 0.07% 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% 0.09%

Classifiedasassetforsale ‐ 0.16% 14.40% 15.27% 16.09% 16.81% 17.42% 17.92% 18.33% 18.65% 18.89% 19.07%

Othercurrentasset 2.76% 2.98% 2.43% 2.33% 2.24% 2.18% 2.12% 2.07% 2.03% 2.00% 1.98% 1.96%

TotalCurrentAsset 29.77% 27.24% 40.14% 43.00% 45.35% 47.23% 48.80% 50.10% 51.14% 51.97% 52.61% 53.05%

Non‐currentAsset

PPE 63.06% 64.71% 54.23% 51.88% 49.98% 48.47% 47.21% 46.16% 45.32% 44.64% 44.12% 43.75%

Goodwill 5.67% 5.18% 4.04% 3.60% 3.20% 2.87% 2.60% 2.38% 2.21% 2.07% 1.97% 1.91%

Otherintangibleassets 0.50% 0.50% 0.44% 0.42% 0.40% 0.39% 0.38% 0.37% 0.37% 0.36% 0.36% 0.35%

Investmenttojoint‐ventureandpartnership

0.68% 0.90% 0.76% 0.73% 0.70% 0.68% 0.66% 0.65% 0.63% 0.62% 0.62% 0.61%

Definedbenefitplan 0.02% ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Defferedtaxasset ‐ 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Othernon‐currentasset 0.29% 1.46% 0.39% 0.38% 0.36% 0.35% 0.34% 0.34% 0.33% 0.32% 0.32% 0.32%

TotalNon‐currentAsset 70.23% 72.76% 59.86% 57.00% 54.65% 52.77% 51.20% 49.90% 48.86% 48.03% 47.39% 46.95%

TotalAsset 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

CurrentLiability

Tradeandotherpayables 6.73% 9.03% 7.60% 7.50% 7.36% 7.17% 6.93% 6.62% 6.22% 5.75% 5.18% 4.53%

Accruedsalaryandbonus 1.22% 1.53% 1.43% 1.41% 1.38% 1.35% 1.30% 1.24% 1.17% 1.08% 0.97% 0.85%

Taxpayable 0.36% 0.33% 0.25% 0.24% 0.24% 0.23% 0.23% 0.22% 0.20% 0.19% 0.17% 0.15%

STInterest‐bearingbankborrowings

2.22% 4.80% 2.72% 2.51% 2.46% 2.40% 2.32% 2.21% 2.08% 1.92% 1.73% 1.51%

OtherCurrentLiability 0.08% 0.14% 0.12% 0.12% 0.11% 0.11% 0.11% 0.10% 0.10% 0.09% 0.08% 0.07%

TotalCurrentLiability 10.61% 15.83% 12.11% 11.95% 11.73% 11.43% 11.05% 10.54% 9.91% 9.16% 8.26% 7.22%

Netcurrentasset 19.16% 11.41% 28.03% 31.05% 33.62% 35.80% 37.75% 39.55% 41.23% 42.82% 44.34% 45.84%

Totalassetlesscurrentliability

89.39% 84.17% 87.89% 88.05% 88.27% 88.57% 88.95% 89.46% 90.09% 90.84% 91.74% 92.78%

Non‐currentLiability

Defferedtaxliability 2.26% 1.42% 2.27% 2.24% 2.20% 2.14% 2.07% 1.98% 1.86% 1.72% 1.55% 1.35%

LTInterest‐bearingbankborrowings

32.14% 24.59% 28.87% 28.49% 27.97% 27.26% 26.34% 25.14% 23.64% 21.84% 19.70% 17.21%

Long‐termbond 10.34% 9.51% 11.10% 10.96% 10.76% 10.49% 10.13% 9.67% 9.09% 8.40% 7.58% 6.62%

Defferedincome 1.50% 1.60% 2.12% 2.09% 2.05% 2.00% 1.93% 1.84% 1.73% 1.60% 1.45% 1.26%

Othernon‐currentliability ‐ 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.04% 0.04% 0.04% 0.03%

Totalnon‐currentliability

46.24% 37.17% 44.42% 43.83% 43.03% 41.94% 40.53% 38.68% 36.37% 33.60% 30.31% 26.47%

TotalLiability 56.86% 52.99% 56.53% 55.78% 54.77% 53.38% 51.58% 49.22% 46.28% 42.75% 38.57% 33.69%

Netasset

43.14% 47.01% 43.47% 44.22% 45.23% 46.62% 48.42% 50.78% 53.72% 57.25% 61.43% 66.31%

Stockholder'sEquity

Capitalstockissued 6.02% 5.67% 4.42% 3.94% 3.50% 3.15% 2.85% 2.61% 2.42% 2.27% 2.16% 2.09%

Reserve 37.11% 41.31% 36.91% 38.03% 39.35% 41.01% 43.02% 45.51% 48.53% 52.11% 56.31% 61.21%

Proposedyear‐enddividends

‐ ‐ 2.11% 2.22% 2.34% 2.42% 2.50% 2.61% 2.72% 2.82% 2.90% 2.96%

Minorityequity 0.01% 0.03% 0.03% 0.04% 0.04% 0.04% 0.05% 0.05% 0.05% 0.05% 0.06% 0.06%

Totalowner'sequity 43.14% 47.01% 43.47% 44.22% 45.23% 46.62% 48.42% 50.78% 53.72% 57.25% 61.43% 66.31%

Totalliabilityandequity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Appendix6:COSLCommon‐sizeStatementofComprehensiveIncome

2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

TotalRevenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

OperatingExpense

Depreciation&Amortization ‐14.24% ‐12.03% ‐11.28% ‐10.17% ‐9.31% ‐8.64% ‐8.12% ‐7.72% ‐7.41% ‐7.17% ‐7.00% ‐6.87%

Salarycost ‐16.48% ‐14.82% ‐16.70% ‐16.95% ‐17.20% ‐17.45% ‐17.70% ‐17.95% ‐17.95% ‐17.95% ‐17.95% ‐17.95%

Fixingandmaintenancecost ‐3.56% ‐3.38% ‐3.23% ‐3.06% ‐2.94% ‐2.86% ‐2.81% ‐2.79% ‐2.79% ‐2.70% ‐2.63% ‐2.59%

Consumptionofsuppliesandservices

‐18.28% ‐17.79% ‐18.31% ‐18.31% ‐18.31% ‐18.31% ‐18.31% ‐18.31% ‐18.31% ‐18.31% ‐18.31% ‐18.31%

SubcontractingExpense ‐12.68% ‐14.22% ‐14.45% ‐15.45% ‐16.45% ‐17.45% ‐18.00% ‐18.00% ‐18.00% ‐18.00% ‐18.00% ‐18.00%

Expenditureonopeartinglease

‐3.19% ‐3.97% ‐3.79% ‐3.57% ‐3.41% ‐3.29% ‐3.21% ‐3.17% ‐3.16% ‐3.16% ‐3.19% ‐3.24%

Otheroperatingexpenditures

‐5.92% ‐6.00% ‐5.46% ‐5.46% ‐5.46% ‐5.46% ‐5.46% ‐5.46% ‐5.46% ‐5.46% ‐5.46% ‐5.46%

OtherSG&A ‐ ‐ ‐0.83% ‐0.83% ‐0.83% ‐0.83% ‐0.83% ‐0.83% ‐0.83% ‐0.83% ‐0.83% ‐0.83%

AssetimpairmentlossonPPE

‐0.43% ‐ ‐0.35% ‐0.31% ‐0.29% ‐0.27% ‐0.25% ‐0.24% ‐0.23% ‐0.22% ‐0.21% ‐0.21%

Totalopeatingexpense ‐74.78% ‐72.22% ‐74.40% ‐74.12% ‐74.19% ‐74.55% ‐74.69% ‐74.47% ‐74.13% ‐73.81% ‐73.59% ‐73.46%

Operatingprofit 25.22% 27.78% 25.60% 25.88% 25.81% 25.45% 25.31% 25.53% 25.87% 26.19% 26.41% 26.54%

Financialrevenue/expenditure

Exchangeearnings,net ‐0.19% ‐0.02% 0.05% 0.02% ‐0.01% 0.01% 0.01% 0.00% 0.01% ‐0.02% 0.01% ‐0.01%

Financialexpense ‐2.30% ‐2.32% ‐2.88% ‐2.68% ‐2.49% ‐2.33% ‐2.17% ‐2.01% ‐1.85% ‐1.68% ‐1.50% ‐1.30%

Interestrevenue 0.57% 0.45% 1.50% 0.88% 0.88% 0.88% 0.88% 0.88% 0.87% 0.87% 0.87% 0.87%

Fiancialexpenditure,net ‐1.92% ‐1.89% ‐1.33% ‐1.78% ‐1.62% ‐1.44% ‐1.28% ‐1.14% ‐0.97% ‐0.82% ‐0.62% ‐0.43%

Investmentincome 0.01% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34% 0.34%

Thejoint‐venturecompanyprofitattributable

1.09% 1.08% 0.94% 0.85% 0.78% 0.72% 0.68% 0.64% 0.62% 0.60% 0.58% 0.57%

Incomebeforetax 24.40% 27.32% 25.56% 25.29% 25.30% 25.07% 25.04% 25.38% 25.86% 26.31% 26.72% 27.02%

Incometax 3.89% 2.88% 3.83% 3.79% 3.80% 3.76% 3.76% 3.81% 3.88% 3.95% 4.01% 4.05%

Netincome 20.51% 24.44% 21.73% 21.50% 21.51% 21.31% 21.28% 21.58% 21.98% 22.36% 22.71% 22.97%

Attributeto:

Shareholdersofthecompany

20.47% 24.40% 21.66% 21.43% 21.44% 21.24% 21.22% 21.51% 21.92% 22.30% 22.65% 22.90%

Minorityinterestincome 0.05% 0.04% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06%

BasicanddilutedEPS 1.01 1.49 1.56 1.84 2.18 2.52 2.88 3.28 3.68 4.06 4.39 4.64

Appendix7:COSLKeyFinancialRatios

KeyRatios 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Profitability EBITDAMargin 40.95% 41.66% 39.72% 38.14% 37.10% 36.03% 35.33% 35.11% 35.12% 35.16% 35.21% 35.19%

EBITMargin 26.70% 29.64% 28.44% 27.97% 27.80% 27.39% 27.21% 27.40% 27.71% 27.99% 28.22% 28.32%

OperatingProfitMargin 25.22% 27.78% 25.60% 25.88% 25.81% 25.45% 25.31% 25.53% 25.87% 26.19% 26.41% 26.54%

NetMargin 20.51% 24.44% 21.73% 21.50% 21.51% 21.31% 21.28% 21.58% 21.98% 22.36% 22.71% 22.97%

ReturnonAssets 6.12% 8.49% 6.93% 7.28% 7.67% 7.94% 8.22% 8.57% 8.93% 9.25% 9.51% 9.71%

ReturnonEquity 14.19% 18.00% 15.95% 16.46% 16.96% 17.03% 16.98% 16.88% 16.62% 16.15% 15.49% 14.64%

Liquidity

CurrentRatio 2.80 1.72 3.31 3.60 3.87 4.13 4.42 4.75 5.16 5.68 6.37 7.35

QuickRatio 2.69 1.64 3.20 3.47 3.73 3.99 4.26 4.59 4.98 5.48 6.15 7.10

CashRatio 1.24 0.77 0.94 1.01 1.08 1.16 1.25 1.34 1.46 1.61 1.81 2.09

Efficiency

CashConversionCycle (22.86) (32.07) (24.89) (10.56) 1.07 9.25 15.61 21.46 27.45 33.88 41.01 49.00

AccountsReceivableTurnover 5.48 5.50 4.96 4.66 4.40 4.30 4.27 4.23 4.20 4.16 4.12 4.09

TradePayableTurnover 3.49 3.26 3.24 3.52 3.77 4.03 4.30 4.56 4.88 5.27 5.78 6.51

InventoryTurnover 23.98 27.36 26.08 24.68 24.60 24.41 24.21 24.01 23.81 23.60 23.39 23.18

FixedAssetTurnover 0.48 0.56 0.61 0.68 0.74 0.80 0.85 0.89 0.92 0.95 0.97 0.98

TotalAssetTurnover 0.32 0.36 0.36 0.36 0.38 0.39 0.41 0.41 0.42 0.43 0.43 0.43

FinancialLeverage

Long‐termDebttoAssets 0.46 0.37 0.44 0.44 0.43 0.42 0.41 0.39 0.36 0.34 0.30 0.26

Long‐termDebttoEquity 1.07 0.79 1.02 0.99 0.95 0.90 0.84 0.76 0.68 0.59 0.49 0.40

DebtRatio 0.57 0.53 0.57 0.56 0.55 0.53 0.52 0.49 0.46 0.43 0.39 0.34

DebttoEquity 1.32 1.12 1.30 1.26 1.21 1.14 1.07 0.97 0.86 0.75 0.63 0.51

InterestCoverage 11.60 12.78 9.88 10.45 11.14 11.77 12.54 13.61 14.97 16.66 18.86 21.87

ShareholderRatios

EarningsperShare 1.01 1.49 1.56 1.84 2.18 2.52 2.88 3.28 3.68 4.06 4.39 4.64

DividendPayoutRatio 30.56% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55%

Source:Teamanalysis.

Appendix8:COSLDCFAssumptions

In1,000CNY 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

TotalRevenue 22,278,742 27,527,118 32,432,450 38,665,967 45,765,039 53,256,204 60,913,115 68,457,965 75,574,171 81,925,235 87,178,691 91,033,079

YoY% 20.2% 23.6% 17.82% 19.22% 18.36% 16.37% 14.38% 12.39% 10.40% 8.40% 6.41% 4.42%

Operatingprofit 5,618,617 7,648,258 8,303,723 10,005,384 11,811,350 13,551,705 15,414,467 17,480,621 19,550,618 21,459,563 23,025,318 24,156,079

YoY% 12.8% 36.1% 8.57% 20.49% 18.05% 14.73% 13.75% 13.40% 11.84% 9.76% 7.30% 4.91%

EBITDA 9,122,989 11,468,551 12,882,145 14,748,809 16,980,978 19,187,927 21,519,118 24,036,362 26,538,265 28,805,768 30,699,737 32,034,691

YoY% 9.2% 25.7% 12.33% 14.49% 15.13% 13.00% 12.15% 11.70% 10.41% 8.54% 6.57% 4.35%

Netincome 4,569,770 6,726,434 7,046,445 8,312,736 9,843,428 11,347,374 12,965,088 14,769,964 16,610,839 18,321,565 19,801,969 20,908,582

YoY% 13.13% 47.19% 4.76% 17.97% 18.41% 15.28% 14.26% 13.92% 12.46% 10.30% 8.08% 5.59%

Taxrate 15.9% 10.5% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%

ROA 6.12% 8.49% 6.93% 7.28% 7.67% 7.94% 8.22% 8.57% 8.93% 9.25% 9.51% 9.71%

ROE 14.2% 14.2% 16.0% 16.5% 17.0% 17.0% 17.0% 16.9% 16.6% 16.1% 15.5% 14.6%

BasicEPS 1.01 1.49 1.56 1.84 2.18 2.52 2.88 3.28 3.68 4.06 4.39 4.64

Payoutratio 30.56% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55% 30.55%

CapEX 4,190,106 8,660,706 6,462,976 7,515,956 8,499,032 9,041,539 9,450,463 9,684,407 9,703,967 9,476,753 9,009,816 8,305,828

FreeCashFlow 946,739 2,539,659 357,425 472,990 1,025,908 2,183,652 3,419,771 5,094,132 7,118,143 9,400,732 11,759,890 14,122,971

Assumptions‐WACC

Variable Value Basis

RiskFreeRate 3.67% 6Nov2014Chinese10‐yearTreasuryBond

MarketRiskPremium 9.71% AveragerateofreturnofChineseA‐sharestockmarket(2014,ShanghaiCompositeIndex)‐RiskFreeRate

Beta 0.93 Historical10‐yearaveragevaluefromThomsonReutersDatastream

CostofEquity 12.70% Teamcomputations

Pre‐taxCostofDebt 3.59% Debtsituationfromcompanyreportandteamcomputations

TaxRate 15.00%TaxrateforHigh‐techenterprise,accordingtoGuofa(2014)No.49,Chinesegovernmentpolicypublishedin28Oct2014

After‐taxCostofDebt 3.05% Teamcomputations

TargetCapitalStructureEquity63.87%Debt36.13%

Teamcomputationsandestimats

WACC 9.21%

Appendix9:COSLDCFComputation

In1,000CNY 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

OperatingIncome 7,648,258 8,303,723 10,005,384 11,811,350 13,551,705 15,414,467 17,480,621 19,550,618 21,459,563 23,025,318 24,156,079

TaxonOperatingIncome 793,171 1,243,490 1,466,953 1,737,076 2,002,478 2,287,957 2,606,464 2,931,325 3,233,217 3,494,465 3,689,750

NOPAT 6,855,087 7,060,233 8,538,431 10,074,274 11,549,227 13,126,511 14,874,157 16,619,293 18,226,346 19,530,853 20,466,329

Depreciation&Amortization

3,310,618 3,658,987 3,934,143 4,258,709 4,598,980 4,944,364 5,282,064 5,597,403 5,874,474 6,098,879 6,257,450

CapitalExpenditure 7,720,593 6,462,976 7,515,956 8,499,032 9,041,539 9,450,463 9,684,407 9,703,967 9,476,753 9,009,816 8,305,828

ChangeinNetWorkingCapital

(3,186,466) 3,898,819 4,483,627 4,808,044 4,923,017 5,200,640 5,377,682 5,394,586 5,223,336 4,860,027 4,294,980

FreeCashFlow 357,425 472,990 1,025,907 2,183,651 3,419,771 5,094,132 7,118,143 9,400,731 11,759,889 14,122,971

GrowthinFCF 32.33% 116.90% 112.85% 56.61% 48.96% 39.73% 32.07% 25.10% 20.09%

ROIC 127.39% 124.91% 127.64% 140.16% 153.24% 169.93% 191.83% 221.30% 263.37%

WACC 9.21% 9.21% 9.21% 9.21% 9.21% 9.21% 9.21% 9.21% 9.21% 9.21%

TerminalGrowthRate 2.43%

ValueofOperations 116,321,240 126,677,002 137,870,963 149,542,971 161,132,227 172,552,734 183,350,708 193,119,165 201,504,709 208,303,403 213,365,175

ValueofInvestments 839,593 15,401,654 18,271,592 21,542,398 24,993,387 28,520,222 31,994,887 35,271,476 38,194,844 40,611,979 42,384,117

ValueofFirm 117,160,833 142,078,655 156,142,556 171,085,369 186,125,614 201,072,956 215,345,595 228,390,642 239,699,553 248,915,382 255,749,293

ValueofDebt 30,980,527 43,558,533 48,111,418 53,075,530 57,599,952 61,440,364 64,051,005 65,019,171 63,987,859 60,636,782 54,802,196

ValueofEquity 86,180,306 98,520,122 108,031,137 118,009,840 128,525,662 139,632,592 151,294,590 163,371,470 175,711,694 188,278,600 200,947,097

Sharesoutstanding(1000)

4,495,320 4,771,592 4,771,592 4,771,592 4,771,592 4,771,592 4,771,592 4,771,592 4,771,592 4,771,592 4,771,592

OneyeartargetsharepricebyDCF

22.64

Appendix10.BusinessForecastForecastofsegementsrevenuein10years

Segment 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Drilling 11,251,600 14,665,200 17,733,160 21,018,710 23,380,496 26,318,608 28,477,225 31,397,941 33,792,432 37,437,838 40,998,881 42,949,850

Wellservice 4,857,900 6,475,000 7,212,453 8,913,099 11,810,537 14,063,171 17,252,293 20,249,463 22,834,645 24,249,387 25,219,629 26,078,219

Transport 2,945,200 3,251,100 3,597,570 4,356,338 5,053,352 6,017,344 7,086,977 7,806,426 8,397,114 8,902,786 9,286,502 9,714,767

Geophysical 3,050,000 2,972,500 3,696,861 4,148,433 5,249,151 6,541,136 7,735,249 8,598,005 10,101,632 10,849,199 11,156,486 11,750,185

Revenue 22,104,699 27,363,812 32,240,043 38,436,580 45,493,536 52,940,259 60,551,744 68,051,835 75,125,823 81,439,210 86,661,499 90,493,020

Source:Teamanalysis.

Forecastofgrowthrevenuein10years

Growthratio 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Drilling 18.26% 30.34% 20.92% 18.53% 11.24% 12.57% 8.20% 10.26% 7.63% 10.79% 9.51% 4.76%

Wellservice 22.97% 33.29% 11.39% 23.58% 32.51% 19.07% 22.68% 17.37% 12.77% 6.20% 4.00% 3.40%

Transportation

16.24% 10.39% 10.66% 21.09% 16.00% 19.08% 17.78% 10.15% 7.57% 6.02% 4.31% 4.61%

Geophysical 25.65% ‐2.54% 22.55% 12.22% 26.53% 24.61% 18.26% 11.15% 17.49% 7.40% 2.83% 5.32%

Revenue 19.96% 23.79% 17.82% 19.22% 18.36% 16.37% 14.38% 12.39% 10.40% 8.40% 6.41% 4.42%

Source:Teamanalysis.

Forecastofdailyincome

2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

AverageDayIncome(USD'000/Day)

147 171 181 207 207 210 215 215 215 215 215 215

Jackuprigs 108 117 129 130 131 136 141 140 140 140 140 140

Semi‐submersiblerigs

298 323 318 310 312 315 320 320 320 320 320 320

Dailyincomegrowthratio

Jackupratio 0.93% 8.33% 10.20% 0.83% 0.77% 3.82% 3.68% ‐0.71% 0.00% 0.00% 0.00% 0.00%

Semi‐submersible

42.58% 8.39% ‐1.50% ‐2.56% 0.65% 0.96% 1.59% 0.00% 0.00% 0.00% 0.00% 0.00%

Source:Teamanalysis.

Forecastofoperatingdays

2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

OperatingDays(Day) 10,956 12,687 13,799 14,346 15,205 16,522 17,790 19,194 20,751 22,481 24,406 26,551

Jackuprigs 9,244 9,654 9,799 9,946 10,145 10,449 10,867 11,302 11,754 12,224 12,713 13,221

Semi‐submersible

rigs1,712 3,033 4,001 4,401 5,061 6,073 6,923 7,892 8,997 10,257 11,693 13,330

Operatingdays

growthratio

Jackupratio 6.35% 4.44% 1.50% 1.50% 2.00% 3.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%

Semi‐submersible

45.33% 77.16% 31.90% 10.00% 15.00% 20.00% 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%

Source:Teamanalysis.Notes:

DailyincomeInfluencedbythedeclineofoilprice,thedailyrateofSemi‐submersiblerigandofjack‐upinnorth‐westEuropedecreasedalot.Sincethecontractsof2014and2015arefixed,COSLwon’tbeinfluencedalot,whilethedailyrateofnewcontractsin2015maydecrease.AccordingtomoreandmoreSemi‐submersibleinoperationandthefactthatdailyrateisunderapressureofgoingdown,weslightlylowerthepriceratein2014inourestimation,andthedecliningtrendremainsin2015.Afterthat,weconservativelyestimatethedailyratewillrecoverslowly..

Thesemi‐annualreportdisclosedasignificantincreaseinthedailyrateofjackuprigs,soweforecastthattherateof2014willkeepinahighlevel.Butfromthehistoricaldata,thedailyrateofjackuprigisgrowingsmoothly,sowestillestimatethegrowthatalowlevel..

OperatingdaysUntilnow,thereare3rigsdonothavenewcontractsin2015,whiletheNorwayNationalOilCompanyrequestthesuspensionofalltherigsfromQ42014.Allthesewillleadtodeclineinoperatingdays.Concerningtheriskoflesscontractsduetooilpricedecline,weassumethegrowthrateofoperatingdaysin2014and2015willdecreasesharplyandrecoversince2016.Theloweroperatingdayswillalsoaffectthebargainabilityofdailyrates..

Appendix11.FinancialAnalysisSupport

DuPontAnaysis 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

NetMargin 20.51% 24.44% 21.73% 21.50% 21.51% 21.31% 21.28% 21.58% 21.98% 22.36% 22.71% 22.97%

TotalAssetTurnover

0.32 0.36 0.36 0.36 0.38 0.39 0.41 0.41 0.42 0.43 0.43 0.43

Asset/Equity 2.32 2.13 2.30 2.26 2.21 2.14 2.07 1.97 1.86 1.75 1.63 1.51

ROA 0.06 0.08 0.07 0.07 0.08 0.08 0.08 0.09 0.09 0.09 0.10 0.10

ROE 14.19% 18.00% 15.95% 16.46% 16.96% 17.03% 16.98% 16.88% 16.62% 16.15% 15.49% 14.64%

Source:Teamanalysis.

ComparisonofdailyratesofCOSLandpeercompanies

Time COSLJack‐Up GLOBALJack‐Up Discount COSLSemi‐Sub GLOBALSsmi‐Sub Discount

2001 26.7 54 ‐51% 50 64.7 ‐23%

2002 29.1 48.3 ‐40% 44.9 63.1 ‐29%

2003 31.5 47 ‐33% 50.1 56.4 ‐11%

2004 33.3 56.3 ‐41% 49.2 66.2 ‐26%

2005 40.4 81.6 ‐50% 57.1 122.3 ‐53%

2006 55.5 150.8 ‐63% 118.4 261.5 ‐55%

2007 78.3 149.9 ‐48% 142.3 291.6 ‐51%

2008 116 152 ‐24% 179 316.9 ‐44%

2009 120 111.1 8% 188 262.3 ‐28%

2010 108 89 21% 188 241.1 ‐22%

2011 107 93.7 14% 261 257.6 1%

2012 107 117 ‐9% 298 304.1 ‐2%

2013 117 137.5 ‐15% 323 317.2 2%

1Q2014 ‐ 146.9 ‐ ‐ 358.8 ‐Source：DeutscheBank,Companydata

CAPEX/ASSETS

Company 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A Average

COSL 0.14 0.18 0.21 0.14 0.14 0.14 0.12 0.07 0.07 0.05 0.1 0.12

NobleCorp 0.06 0.03 0.05 0.15 0.13 0.11 0.09 0.12 0.19 0.11 0.15 0.11

RowanCompanies 0.11 0.05 0.07 0.14 0.12 0.18 0.11 0.08 0.23 0.09 0.08 0.11

DiamondOffshoreDrilling 0.07 0.03 0.08 0.13 0.15 0.13 0.07 0.06 0.11 0.1 0.11 0.09

TransoceanLtd 0.04 0.01 0.02 0.08 0.04 0.06 0.08 0.04 0.03 0.04 0.07 0.05

SeadrillLtd n.a n.a 0.23 0.18 0.19 0.22 0.1 0.14 0.14 0.08 0.16 0.16

EnscoPlc 0.06 0.09 0.13 0.12 0.1 0.13 0.13 0.12 0.04 0.1 0.09 0.1

NaborsIndustriesLtd 0.06 0.09 0.13 0.21 0.2 0.14 0.1 0.08 0.16 0.12 0.1 0.13

HalliburtonCo 0.03 0.04 0.04 0.05 0.12 0.13 0.11 0.11 0.12 0.13 0.1 0.09

BakerHughes 0.06 0.05 0.06 0.11 0.11 0.11 0.09 0.06 0.1 0.11 0.07 0.08

CameronInternational 0.03 0.02 0.03 0.04 0.05 0.05 0.03 0.03 0.04 0.04 0.04 0.04

Peeraverages(x‐COSL) 0.06 0.05 0.08 0.12 0.12 0.13 0.09 0.08 0.12 0.09 0.1 0.09

Drillersaverages 0.07 0.04 0.1 0.13 0.12 0.14 0.1 0.09 0.12 0.09 0.11 0.1Source:DeutscheBank,Companydata

Appendix12.1CompanyComparison(China)

MarketData&PriceMultiples

Name

ChinaOilfieldServicesLimited

ChinaOilHBP

ScienceandTechnologyCorporation

Ltd.

LandOceanEnergyServicesCo.,Ltd.

TongOilToolsCo.,Ltd.

SinoGeophysicalCo.,Ltd.

JutalOffshore

OilServicesLimited

AntonOilfieldServicesGroup

SPTEnergyGroupInc.

HilongHoldingLimited

Mean Median High Low

Ticker 601808‐SH 002554‐SZ 300157‐SZ 300164‐SZ 300191‐SZ 3303‐HK 3337‐HK 1251‐HK 1623‐HK

LastPeriodEndDate 06/30/2014 03/31/2014 09/30/2014 09/30/2014 09/30/2014 06/30/2014 06/30/2014 06/30/2014 06/30/2014

Price 17.60 13.49 12.77 12.72 24.55 2.00 1.25 1.92 2.26 9.84 12.72 24.55 1.2552WeekLow 11.80 10.30 11.52 8.66 18.22 1.06 1.18 1.87 1.88 7.39 8.66 18.22 1.0652WeekHigh 20.51 14.80 20.93 16.49 37.88 2.69 4.89 4.73 5.53 14.27 14.80 37.88 2.69

DividendYieldTTM 2.38% 0.39% 0.21% 0.24% 0.12% 0.85% 4.23% 2.61% 3.05% 1.57% 0.85% 4.23% 0.12%TotalReturn1Y 27.89% 21.96% 17.24% 30.32% 70.46% 12.05% (3.39%) (12.20%) (12.90%) 16.82% 17.24% 70.46% ‐12.90%

SharesOutstanding 2,960 456 598 380 320 800 2,215 1,534 1,696 1,218 800 2,960 320

MarketCap‐Consolidated 73,836.75 6,146.38 7,632.66 4,835.63 7,855.99 1,595.78 2,759.87 2,948.09 3,840.25 12,383.49 4,835.63 73,836.75 1,595.78

EV 93,381.03 6,178.67 7,733.38 4,746.37 7,115.23 1,791.71 4,250.65 2,900.86 5,273.25 14,819.02 5,273.25 93,381.03 1,791.71

P/ETTM 10.25 57.66 52.41 4,356.16 145.12 25.15 10.96 10.25 9.12 519.68 25.15 4,356.16 9.12

P/EFY1 10.36 38.46 29.91 48.09 78.43 18.77 19.50 8.52 8.78 28.98 19.50 78.43 8.52

P/EFY2 10.02 29.23 21.78 38.20 65.47 13.96 10.43 6.41 7.24 22.53 13.96 65.47 6.41

PEGFY1 0.86 1.12 0.66 0.72 10.67 3.74 NEG 0.85 12.33 3.87 0.99 12.33 0.66

PEGFY2 1.40 1.41 0.94 1.53 6.17 1.04 NEG 0.53 0.84 1.73 1.22 6.17 0.53Price/CashFlowTTM 8.42 35.28 33.74 43.47 158.04 6.76 6.43 12.81 9.89 34.98 12.81 158.04 6.43Price/CashFlowFY1 7.35 20.13 116.09 16.31 ‐ ‐ 8.08 13.96 7.54 27.07 13.96 116.09 7.35Price/CashFlowFY2 6.92 56.21 45.61 NEG ‐ ‐ 6.09 7.90 7.52 21.71 7.71 56.21 6.09Price/BookValue 1.90 3.85 3.94 4.46 6.88 1.04 4.13 2.91 1.91 3.45 3.85 6.88 1.04Price/BVTangible 2.11 5.38 6.52 4.62 6.92 1.71 1.46 1.74 1.47 3.55 2.11 6.92 1.46

Source:ThomsonReuters

Appendix12.2CompanyComparison(China)

EVMultiples&CreditRatios

NameChinaOilfieldServicesLimited

ChinaOilHBP

ScienceandTechnologyCorporation

Ltd.

LandOceanEnergyServicesCo.,Ltd.

TongOilToolsCo.,Ltd.

SinoGeophysicalCo.,Ltd.

JutalOffshore

OilServicesLimited

AntonOilfieldServicesGroup

SPTEnergyGroupInc.

HilongHoldingLimited Mean Median High Low

Ticker 601808‐SH 002554‐SZ 300157‐SZ 300164‐SZ 300191‐SZ 3303‐HK 3337‐HK 1251‐HK 1623‐HK

LastPeriodEndDate

06/30/2014 03/31/2014 09/30/2014 09/30/2014 09/30/2014 06/30/2014 06/30/2014 06/30/2014 06/30/2014

SalesTTM 30,850.48 1,014.72 706.53 335.27 137.84 980.92 2,588.89 2,615.72 2,468.80 4,633.24 1,014.72 30,850.48 137.84

SalesYoY 1.24 1.61 1.25 0.94 0.91 1.34 1.15 1.25 0.99 1.18 1.24 1.61 0.91

SalesFY1 32,377.93 1,268.00 968.05 503.20 ‐ 1,109.50 2,681.07 3,022.44 2,783.45 5,589.20 1,974.53 32,377.93 503.20

EBITDATTM

12,803.19 ‐ ‐ ‐ ‐ 84.46 702.84 486.32 ‐ 3,519.20 594.58 12,803.19 84.46

EBITDAYoY ‐ ‐ ‐ ‐ ‐ 1.19 1.19 1.06 ‐ 1.15 1.19 1.19 1.06

EBITDAFY1 13,194.51 ‐ 366.35 119.50 ‐ 139.00 587.10 575.01 772.66 2,250.59 575.01 13,194.51 119.50

EBITTTM 9,285.74 149.14 220.64 3.31 71.42 62.41 503.08 407.20 551.64 1,250.51 220.64 9,285.74 3.31

EBITYoY 1.38 1.29 1.25 0.04 0.68 1.20 1.11 1.03 1.11 1.01 1.11 1.38 0.04

EBITFY1 9,446.98 164.00 282.10 84.70 ‐ 90.00 395.80 482.56 613.80 1,444.99 338.95 9,446.98 84.70

NetIncomeTTM

7,959.67 106.59 144.37 1.11 54.14 58.06 245.74 287.38 420.55 1,030.84 144.37 7,959.67 1.11

NetMarginTTM

25.80% 10.50% 20.43% 0.33% 39.27% 5.92% 9.49% 10.99% 17.03% 15.53% 10.99% 39.27% 0.33%

NetMarginFY1

24.52% 12.01% 26.57% 31.01% ‐ 6.25% 5.47% 11.59% 15.58% 16.62% 13.79% 31.01% 5.47%

EPSTTM 1.72 0.23 0.24 0.00 0.17 0.08 0.11 0.19 0.25 0.33 0.19 1.72 0.00

EPSYoY 1.45 1.06 1.03 0.03 0.60 0.99 0.71 0.95 1.24 0.90 0.99 1.45 0.03

EPSFY1 1.70 0.35 0.43 0.26 0.31 0.11 0.06 0.23 0.26 0.41 0.26 1.70 0.06

ROATTM 10.76% 6.38% 6.43% 0.44% 4.44% 4.60% 7.77% 11.49% 10.34% 6.96% 6.43% 11.49% 0.44%

ROETTM 20.50% 8.34% 6.76% 0.09% 4.55% 5.72% 11.39% 17.36% 16.30% 10.11% 8.34% 20.50% 0.09%

ROICTTM 13.00% ‐ ‐ 0.48% 4.55% 5.84% 9.87% 15.49% 11.82% 8.72% 9.87% 15.49% 0.48%

Source:ThomsonReuters

Appendix12.3CompanyComparison(China)

KeyFinancials&Effectiveness

NameChinaOilfieldServicesLimited

ChinaOilHBP

ScienceandTechnologyCorporation

Ltd.

LandOceanEnergyServicesCo.,Ltd.

TongOilToolsCo.,Ltd.

SinoGeophysicalCo.,Ltd.

JutalOffshore

OilServicesLimited

AntonOilfieldServicesGroup

SPTEnergyGroupInc.

HilongHoldingLimited Mean Median High Low

Ticker 601808‐SH 002554‐SZ 300157‐SZ 300164‐SZ 300191‐SZ 3303‐HK 3337‐HK 1251‐HK 1623‐HK

LastPeriodEndDate 06/30/2014 03/31/2014 09/30/2014 09/30/2014 09/30/2014 06/30/2014 06/30/2014 06/30/2014 06/30/2014

SalesTTM 30,850.48 1,014.72 706.53 335.27 137.84 980.92 2,588.89 2,615.72 2,468.80 4,633.24 1,014.72 30,850.48 137.84

SalesYoY 1.24 1.61 1.25 0.94 0.91 1.34 1.15 1.25 0.99 1.18 1.24 1.61 0.91

SalesFY1 32,377.93 1,268.00 968.05 503.20 ‐ 1,109.50 2,681.07 3,022.44 2,783.45 5,589.20 1,974.53 32,377.93 503.20

EBITDATTM 12,803.19 ‐ ‐ ‐ ‐ 84.46 702.84 486.32 ‐ 3,519.20 594.58 12,803.19 84.46

EBITDAYoY ‐ ‐ ‐ ‐ ‐ 1.19 1.19 1.06 ‐ 1.15 1.19 1.19 1.06

EBITDAFY1 13,194.51 ‐ 366.35 119.50 ‐ 139.00 587.10 575.01 772.66 2,250.59 575.01 13,194.51 119.50

EBITTTM 9,285.74 149.14 220.64 3.31 71.42 62.41 503.08 407.20 551.64 1,250.51 220.64 9,285.74 3.31

EBITYoY 1.38 1.29 1.25 0.04 0.68 1.20 1.11 1.03 1.11 1.01 1.11 1.38 0.04

EBITFY1 9,446.98 164.00 282.10 84.70 ‐ 90.00 395.80 482.56 613.80 1,444.99 338.95 9,446.98 84.70

NetIncomeTTM 7,959.67 106.59 144.37 1.11 54.14 58.06 245.74 287.38 420.55 1,030.84 144.37 7,959.67 1.11NetMarginTTM 25.80% 10.50% 20.43% 0.33% 39.27% 5.92% 9.49% 10.99% 17.03% 15.53% 10.99% 39.27% 0.33%NetMarginFY1 24.52% 12.01% 26.57% 31.01% ‐ 6.25% 5.47% 11.59% 15.58% 16.62% 13.79% 31.01% 5.47%

EPSTTM 1.72 0.23 0.24 0.00 0.17 0.08 0.11 0.19 0.25 0.33 0.19 1.72 0.00

EPSYoY 1.45 1.06 1.03 0.03 0.60 0.99 0.71 0.95 1.24 0.90 0.99 1.45 0.03

EPSFY1 1.70 0.35 0.43 0.26 0.31 0.11 0.06 0.23 0.26 0.41 0.26 1.70 0.06

ROATTM 10.76% 6.38% 6.43% 0.44% 4.44% 4.60% 7.77% 11.49% 10.34% 6.96% 6.43% 11.49% 0.44%

ROETTM 20.50% 8.34% 6.76% 0.09% 4.55% 5.72% 11.39% 17.36% 16.30% 10.11% 8.34% 20.50% 0.09%

ROICTTM 13.00% ‐ ‐ 0.48% 4.55% 5.84% 9.87% 15.49% 11.82% 8.72% 9.87% 15.49% 0.48%

Source:ThomsonReuters

Appendix13.1CompanyComparison(Global)

MarketData&PriceMultiples

Name ChinaOilfieldServicesLimited

BAKERHUGHESINCORPORATED

HALLIBURTONCOMPANY

SchlumbergerN.V.

NOBLECORPORATION

PLCROWAN

COMPANIESPLC

DIAMONDOFFSHORE

DRILLING,INC. Transocen

Ticker 601808‐SH BHI‐US HAL‐N SLB‐N NE‐N RDC‐N DO‐US RIG‐N

LastPeriodEndDate 06/30/2014 09/30/2014 09/30/2014 09/30/2014 06/30/2014 06/30/2014 09/30/2014 06/30/2014

Price 17.60 51.49 53.17 96.98 21.12 23.80 36.65 29.92

52WeekLow 11.80 47.51 47.60 84.91 17.93 21.19 32.71 27.08

52WeekHigh 20.51 75.64 74.33 118.76 40.66 37.81 62.25 55.74

DividendYieldTTM 2.38% 1.28% 1.31% 1.62% 7.17% 1.65% 1.33% 10.04%

TotalReturn1Y 27.89% 33.77% 35.22% 16.80% (7.37%) (5.99%) (43.00%) (1.21%)

SharesOutstanding 2,960 433 847 1,287 252 125 137 362

MarketCap‐Consolidated 73,836.75 22,274.51 45,059.44 124,793.10 5,327.68 2,963.18 5,026.46 10,836.70

EV 93,381.03 25,679.51 50,873.44 131,280.10 11,919.79 4,523.93 6,192.89 19,191.70

P/ETTM 10.25 17.40 13.54 18.84 5.75 15.31 13.28 5.98

P/EFY1 10.36 12.97 13.17 17.26 7.16 11.07 11.86 6.46

P/EFY2 10.02 10.61 10.98 15.28 9.29 6.68 10.91 11.15

PEGFY1 0.86 0.38 0.60 1.11 3.51 0.95 NEG 0.57

PEGFY2 1.40 0.54 0.70 1.31 NEG 0.34 NEG NEG

Price/CashFlowTTM 8.42 7.94 9.48 11.18 2.63 6.18 5.82 3.29

Price/CashFlowFY1 7.35 7.22 8.94 11.88 3.39 5.64 5.83 4.37

Price/CashFlowFY2 6.92 5.54 7.21 10.44 4.03 3.64 5.12 4.92

Price/BookValue 1.90 1.56 3.53 3.23 0.97 0.80 1.05 0.97

Price/BVTangible 2.11 2.00 3.42 6.07 0.61 0.59 1.12 0.79

1USD=6.1428CNY(Nov6.2014)

Source:ThomsonReuters

Name

SEADRILLLIMITED ENSCOPLC

WEATHERFORDINTERNATIONALPUBLICLIMITED

COMPANY

CAMERONINTERNATIONALCORPORATION

Mean(exceptCOSL)

Median(exceptCOSL)

High(exceptCOSL)

Low(exceptCOSL)

Ticker SDRL‐N ESV‐N WFT‐N CAM‐N

LastPeriodEndDate 06/30/2014 09/30/2014 09/30/2014 09/30/2014

Price 21.30 41.10 15.38 58.29 40.84 36.65 96.98 15.38

52WeekLow 20.37 36.49 13.07 53.22 36.55 32.71 84.91 13.07

52WeekHigh 41.91 63.17 24.88 74.89 60.91 62.25 118.76 24.88

DividendYieldTTM 17.56% 6.43% 0.00% 0.00% 4.40% 1.62% 17.56% 0.00%

TotalReturn1Y 7.92% (18.35%) 35.68% 13.72% 6.11% 7.92% 35.68% ‐43.00%

SharesOutstanding 493 234 774 197 467.42 362.19 1,286.79 124.50

MarketCap‐Consolidated 10,503.17 9,627.00 11,901.55 11,509.12 23,620.17 10,836.70 124,793.10 2,963.18

EV 22,808.17 14,165.03 20,112.55 14,550.12 29,208.84 19,191.70 131,280.10 4,523.93

P/ETTM 2.39 NEG NEG 16.06 12.06 13.54 18.84 2.39

P/EFY1 7.14 6.62 14.54 14.15 11.13 11.86 17.26 6.46

P/EFY2 6.51 7.71 10.06 11.97 10.10 10.61 15.28 6.51

PEGFY1 0.46 NEG 0.34 0.70 0.96 0.60 3.51 0.34

PEGFY2 0.61 NEG 0.43 0.82 0.68 0.61 1.31 0.34

Price/CashFlowTTM 5.51 4.85 6.24 11.82 6.81 6.18 11.82 2.63

Price/CashFlowFY1 4.34 4.87 7.27 11.39 6.83 5.83 11.88 3.39

Price/CashFlowFY2 5.26 4.99 4.78 8.70 5.88 5.12 10.44 3.64

Price/BookValue 1.84 0.82 2.05 2.75 1.78 1.56 3.53 0.80

Price/BVTangible 1.08 1.13 3.01 8.49 2.57 1.13 8.49 0.59

1USD=6.1428CNY(Nov6.2014)

Source:ThomsonReuters

Appendix13.2CompanyComparison(Global)

EVMultiples&CreditRatios

NameChinaOilfieldServicesLimited

BAKERHUGHESINCORPORATED

HALLIBURTONCOMPANY

SchlumbergerN.V.

NOBLECORPORATION

PLCROWAN

COMPANIESPLC

DIAMONDOFFSHORE

DRILLING,INC. Transocen

Ticker 601808‐SH BHI‐US HAL‐N SLB‐N NE‐N RDC‐N DO‐US RIG‐N

LastPeriodEndDate 06/30/2014 09/30/2014 09/30/2014 09/30/2014 06/30/2014 06/30/2014 09/30/2014 06/30/2014

EV/SalesTTM 3.03 1.08 1.60 2.74 2.52 2.87 2.16 2.01

EV/SalesFY1 2.88 1.05 1.54 2.68 2.94 2.51 2.19 2.14

EV/SalesFY2 2.69 0.99 1.43 2.51 3.42 1.93 1.97 2.29

EV/EBITDATTM 7.29 6.25 7.30 9.87 5.22 8.01 5.71 5.08

EV/EBITDAFY1 7.08 5.48 7.00 9.47 5.93 6.52 5.67 5.32

EV/EBITDAFY2 6.77 4.83 6.05 8.62 7.19 4.49 4.96 6.52

EV/EBITTTM 10.06 11.04 10.37 14.05 9.02 16.36 9.33 7.19

EV/EBITFY1 9.88 8.83 9.86 13.33 10.34 11.98 9.66 7.97

EV/EBITFY2 9.55 7.49 8.27 11.91 12.28 7.33 8.63 10.95

TotalDebt/EV 0.31 0.17 0.15 0.10 0.50 0.62 0.36 0.54

NetDebt/EV 0.21 0.12 0.11 0.05 0.49 0.34 0.19 0.43

TotalDebt/Equity 0.66 0.24 0.50 0.32 0.69 0.56 0.50 0.62

NetDebt/Equity 0.44 0.18 0.37 0.16 0.67 0.31 0.26 0.50

TotalDebt/EBITDAFY1 2.21 0.94 1.08 0.94 2.99 4.04 2.05 2.90

NetDebt/EBITDAFY1 1.48 0.68 0.80 0.45 2.92 2.25 1.07 2.31

EBITDA/Int.Exp.FY1 20.70 19.86 18.50 32.10 9.46 4.99 9.00 6.46

EBITDA‐Capex/Int.Exp.FY1 5.21 12.15 11.29 22.94 (2.11) (2.89) (1.22) 1.30

EBIT/Int.Exp.FY1 14.82 12.32 13.12 22.80 5.42 2.71 5.28 4.31

1USD=6.1428CNY(Nov6.2014)

Source:ThomsonReuters

NameSEADRILLLIMITED ENSCOPLC

WEATHERFORDINTERNATIONALPUBLICLIMITED

COMPANY

CAMERONINTERNATIONALCORPORATION

Mean(exceptCOSL)

Median(exceptCOSL)

High(exceptCOSL)

Low(exceptCOSL)

Ticker SDRL‐N ESV‐N WFT‐N CAM‐N

LastPeriodEndDate 06/30/2014 09/30/2014 09/30/2014 09/30/2014

EV/SalesTTM 4.39 2.99 1.35 1.38 2.28 2.16 4.39 1.08

EV/SalesFY1 4.49 2.89 1.32 1.38 2.28 2.19 4.49 1.05

EV/SalesFY2 3.85 2.87 1.25 1.33 2.17 1.97 3.85 0.99

EV/EBITDATTM 4.11 9.38 11.34 9.55 7.44 7.30 11.34 4.11

EV/EBITDAFY1 8.22 5.84 6.58 8.89 6.81 6.52 9.47 5.32

EV/EBITDAFY2 7.38 6.13 5.74 7.99 6.35 6.13 8.62 4.49

EV/EBITTTM 4.74 14.96 53.35 12.47 14.81 11.04 53.35 4.74

EV/EBITFY1 10.97 8.37 11.88 11.34 10.41 10.34 13.33 7.97

EV/EBITFY2 10.12 8.46 9.22 10.02 9.52 9.22 12.28 7.33

TotalDebt/EV 0.58 0.42 0.43 0.22 0.37 0.42 0.62 0.10

NetDebt/EV 0.51 0.32 0.40 0.14 0.28 0.32 0.51 0.05

TotalDebt/Equity 1.30 0.50 1.11 0.67 0.64 0.56 1.30 0.24

NetDebt/Equity 1.15 0.38 1.03 0.42 0.49 0.38 1.15 0.16

TotalDebt/EBITDAFY1 4.74 2.46 2.85 1.96 2.45 2.46 4.74 0.94

NetDebt/EBITDAFY1 4.21 1.87 2.66 1.24 1.86 1.87 4.21 0.45

EBITDA/Int.Exp.FY1 5.75 11.10 5.98 13.22 12.40 9.46 32.10 4.99

EBITDA‐Capex/Int.Exp.FY1 (2.26) 3.29 3.23 9.40 5.01 3.23 22.94 ‐2.89

EBIT/Int.Exp.FY1 4.31 7.75 3.31 10.37 8.34 5.42 22.80 2.71

1USD=6.1428CNY(Nov6.2014)

Source:ThomsonReuters

Appendix13.3CompanyComparison(Global)

KeyFinancials&Effectiveness

NameChinaOilfieldServicesLimited

BAKERHUGHESINCORPORATED

HALLIBURTONCOMPANY

SchlumbergerN.V.

NOBLECORPORATION

PLCROWAN

COMPANIESPLC

DIAMONDOFFSHORE

DRILLING,INC. Transocen

Ticker 601808‐SH BHI‐US HAL‐N SLB‐N NE‐N RDC‐N DO‐US RIG‐N

LastPeriodEndDate 06/30/2014 09/30/2014 09/30/2014 09/30/2014 06/30/2014 06/30/2014 09/30/2014 06/30/2014

SalesTTM 30,850.48 23,776.00 31,739.00 47,943.00 4,737.46 1,576.64 2,865.85 9,557.00

SalesYoY 1.24 1.09 1.09 1.05 1.23 1.04 0.97 1.02

SalesFY1 32,377.93 24,424.98 33,059.26 48,945.57 4,054.17 1,799.27 2,823.78 8,986.84

EBITDATTM 12,803.19 4,108.00 6,971.00 13,301.00 2,281.94 564.91 1,085.32 3,778.00

EBITDAYoY ‐ 1.15 1.46 1.08 1.34 0.95 0.87 1.06

EBITDAFY1 13,194.51 4,687.54 7,269.08 13,866.16 2,011.05 694.16 1,092.98 3,604.84

EBITTTM 9,285.74 2,326.00 4,905.00 9,343.00 1,320.97 276.49 663.56 2,669.00

EBITYoY 1.38 1.22 1.67 1.08 1.50 0.83 0.77 1.09

EBITFY1 9,446.98 2,908.67 5,157.07 9,850.82 1,152.86 377.47 641.27 2,407.50

NetIncomeTTM 7,959.67 1,304.00 3,392.00 6,800.00 933.41 194.04 380.78 1,801.00

NetMarginTTM 25.80% 5.48% 10.69% 14.18% 19.70% 12.31% 13.29% 18.84%

NetMarginFY1 24.52% 7.15% 10.39% 15.05% 18.66% 14.74% 15.09% 18.36%

EPSTTM 1.72 2.96 3.93 5.15 3.68 1.55 2.76 5.00

EPSYoY 1.45 1.23 1.81 1.07 1.65 0.83 0.63 2.56

EPSFY1 1.70 3.97 4.04 5.62 2.95 2.15 3.09 4.63

ROATTM 10.76% 5.43% 12.72% 10.84% 7.06% 3.99% 6.53% 7.34%

ROETTM 20.50% 7.27% 23.99% 17.35% 11.26% 4.00% 8.33% 11.10%

ROICTTM 13.00% ‐ ‐ ‐ 7.69% ‐ 7.80% 8.79%

1USD=6.1428CNY(Nov6.2014)

Source:ThomsonReuters

NameSEADRILLLIMITED ENSCOPLC

WEATHERFORDINTERNATIONALPUBLICLIMITED

COMPANY

CAMERONINTERNATIONALCORPORATION

Mean(exceptCOSL)

Median(exceptCOSL)

High(exceptCOSL)

Low(exceptCOSL)

Ticker SDRL‐N ESV‐N WFT‐N CAM‐N

LastPeriodEndDate 06/30/2014 09/30/2014 09/30/2014 09/30/2014

SalesTTM 5,192.00 4,736.24 14,922.00 10,514.50 14,323.61 9,557.00 47,943.00 1,576.64

SalesYoY 1.07 0.96 0.96 1.13 1.06 1.05 1.23 0.96

SalesFY1 5,077.28 4,907.12 15,230.25 10,580.91 14,535.40 8,986.84 48,945.57 1,799.27

EBITDATTM 5,547.00 1,509.44 1,773.00 1,523.50 3,858.46 2,281.94 13,301.00 564.91

EBITDAYoY 1.51 0.60 0.88 1.18 1.10 1.08 1.51 0.60

EBITDAFY1 2,776.35 2,424.72 3,057.75 1,636.63 3,920.11 2,776.35 13,866.16 694.16

EBITTTM 4,816.00 946.55 377.00 1,166.50 2,619.10 1,320.97 9,343.00 276.49

EBITYoY 1.58 0.49 0.60 1.16 1.09 1.09 1.67 0.49

EBITFY1 2,079.39 1,692.64 1,693.17 1,283.52 2,658.58 1,693.17 9,850.82 377.47

NetIncomeTTM 4,186.00 (88.37) (380.00) 778.80 1,754.70 933.41 6,800.00 (380.00)

NetMarginTTM 80.62% (1.87%) (2.55%) 7.41% 16.19% 12.31% 80.62% ‐2.55%

NetMarginFY1 35.25% 28.29% 5.44% 8.00% 16.04% 15.05% 35.25% 5.44%

EPSTTM 8.93 (0.32) (0.49) 3.63 3.34 3.63 8.93 (0.49)

EPSYoY 1.82 (0.05) 1.91 1.29 1.34 1.29 2.56 (0.05)

EPSFY1 2.98 6.21 1.06 4.12 3.71 3.97 6.21 1.06

ROATTM 19.32% 0.67% 0.36% 6.70% 7.36% 6.70% 19.32% 0.36%

ROETTM 47.71% (0.72%) (5.31%) 13.76% 12.61% 11.10% 47.71% ‐5.31%

ROICTTM ‐ ‐ 0.46% ‐ 6.18% 7.74% 8.79% 0.46%

1USD=6.1428CNY(Nov6.2014)

Source:ThomsonReuters

Appendix14.Glossary

Glossary Explanation

2DSeismicdatacollectedintwodimensionalform,byutilizingasinglesoundsourceandoneormorecollectionpoints;typically2Disusedtomapgeographicalstructuresforinitialanalysis

3DSeismicdatacollectedinthree‐dimensionalform,byutilizingtwosoundsourcesandtwoormorecollectionpoints;typically3Disusedtoacquirerefinedseismicdataandtoraisetheprobabilityofsuccessfulexplorationwelldrilling

AWO AwilcoOffshoreASA,knownasCOSLDrillingEuropeASaftermergersandacquisitions,“CDE”

COSL ChinaOilfieldServicesLimited

CDE COSLDrillingEuropeAS

CDPL COSLDrillingPan‐PacificLtd

DNV DetNorskeVeritas

ELIS EnhancedLoggingImagingSystem

LWD Logging‐while‐drilling

MWD Measuring‐while‐drilling

Crudeoil Crudeoil,includingcondensateandnaturalgasliquids

Dayrate Fixeddailyfeechargedwithrespecttotheservicesprovidedbyadrillingrigoroffshoresupportvessel

DirectionaldrillingIntentionaldrillingofawellatanon‐verticalordeviatedangle,inordertoimprovereachorexposuretopetroleumreservoirs;suchdrillingisespeciallycommonforoffshorewells,giventhemultiplenumberofwellswhichmaybedrilledfromasingleproductionplatform

E&P Explorationandproduction

ERSC ELISRotarySidewallCoringTool

FCT FormationCharacteristicTool

FET FormationEvaluationTool

Field Aspecifiedareawithinablock,whichisdesignatedunderaPSCfordevelopmentandproduction

HTHPHigh‐temperatureandhighpressuredownwellconditions,whichtypicallyincludestemperaturesgreaterthan200degreesCelsiusand10,000psi;HTHPconditionsmakedrillingmoredifficult

Jack‐uprigs

Jack‐uprigsaresonamedbecausetheyareselfelevating‐withthreeorfourmovablelegsthatcanbeextended(“jacked”)aboveorbelowthedrillingdeck,orhull.Jack‐upsaretowedtothedrillsitewiththehull,whichisactuallyawater‐tightbargethatfloatsonthewater’ssurface,loweredtothewaterlevel,andthelegsextendedabovethehull.Whentherigreachesthedrillsite,thecrewjacksthelegsdownwardthroughthewaterandintotheseafloor(orontotheseafloorwithmatsupportedjack‐ups).Thisanchorstherigandholdsthedrillingdeckwellabovethewaves

Semi‐submersibles

Semi‐submersiblesdonotrestontheseafloorasjackuprigs.Instead,theworkingdecksitsatopgiantpontoonsandhollowcolumns.Theseafloatabovethewaterwhentherigmoves.Atthedrillsite,thecrewpumpsseawaterintothepontoonsandcolumnstopartiallysubmergetherig,hencethenamesemisubmersible.Withmuchofitsbulkbelowthewater’ssurface,thesemisubmersiblebecomesastableplatformfordrilling,movingonlyslightlywithwindandcurrents.Likejack‐ups,mostsemi‐submersiblesaretowedtothedrillsite.Becauseoftheirexceptionalstability,“semis”arewellsuitedfordrillinginroughwaters.Semisubmersiblescandrillinwaterasdeepas10,000feetDrillshipsarespeciallybuiltseagoingvesselsthatalsodrillinwaterasdeepas10,000feetDrillingequipmentisinstalledonthedeck,withthederricknormallyplacedinthemiddleoftheship.Thewellisdrilledthroughanopening(calleda“moonpool”)thatextendstothewater’ssurfacebelowthederrick

LWDLogging‐while‐drilling;advancedloggingtoolswhichareattachednearthedrillbitstringandmeasurethelocationofthedrillbitandnatureofadjacentgeologicalstructures,typicallyduringthedirectionaldrillingprocess

MWDMeasuring‐while‐drilling;advancedtoolswhichmeasurethepitchandorientationofthedrillbitandotherfactorssuchasweightonthebitandrotaryspeedofthebit,typicallyduringthedirectionaldrillingprocess

OPEC OrganizationofthePetroleumExportingCountries

PSC AproductionsharingcontractoffshoreChina

PSCpartners ForeignpartiestoPSCs

QHSE Quality,health,safetyenvironment

SeismicdataDatarecordedineithertwodimensional(2D)orthreedimensional(3D)formfromsoundwavereflectionsoffofsubsurfacegeology.Thisdataisusedtounderstandandmapgeologicalstructuresforexploratorypurposestopredictthelocationofundiscoveredreserves

SMS Safetymanagementsystem

ISMC InternationalSafetyManagementCode

DOC DocumentofCompliance

StreamersClearflexibletubingcontainingnumeroushydrophonesusedformarineseismicsurveys;streamersareowedbehindseismicvesselsatcontrolledshallowwaterdepthstocollectseismicdata

WellcompletionServicesandinstallationofequipmentthatarenecessarytoprepareawellforproduction,includingcasingandwelltreatment,suchasacidizingandfracing

Well

Anyworkonacompletedworkoverwelldesignedtomaintain,restoreorimproveproductionfromacurrentlyproducingpetroleumreservoir,thismayincludereplacementofcasingandwelltreatment,suchassandcontrol,fracing,acidizingbblAbarrel,whichisequivalenttoapproximately158.988litersor0.134tonsofoil(ataAPIgravityof33degrees)

Kw Kilowattsusedtomeasureoffshoresupplyvesselenginepowercapacity,whichisequivalentto1.36horsepower

Standardcoal Theuniformstandardofthermalvalue,Chinarequiredthethermalvalueof1kgstandardcoaltobe7,000kilocalorie

Appendix15.CompanyInformation

Title Information

Legalname 中海油田服务股份有限公司

EnglishName ChinaOilfieldServicesLimited

ShortName 中海油服/COSL

AuthorisedRepresentative Mr.LiYong

FirstregistrationAddress 3‐1516HebeiRoad,HaiyangNewandHi‐TechDevelopmentZone,Tanggu,Tianjin

Theregistrationdate 37525

Changedregistrationdate 39511

BusinessAddress

Room1110,BuildingB,KaihengTower2ChaoyangmenInnerStreetDongChengDistrict,BeijingPostalCode:100010Tel:86‐10‐84521687Fax:86‐10‐84521325

Website:www.cosl.com.cnEmail:cosl@cosl.com.cn

HongKongOffice65/F,BankofChinaTower,OneGardenRoad,Central,HongKong

Tel:(852)22132500Fax:(852)25259322

CorporateSecretary&SecretarytotheBoardofDirectors

Mr.YangHaijiang

Tel:010‐84521685

Fax:010‐84521325

E‐mail:yanghj@cosl.com.cn

ContactAddress:Room1110,

BuildingB,KaihengTower2Chaoyangmen,InnerStreet,DongChengDistrict,Beijing

PostalCode:100010

Newspapersfordisclosureofinformation

ChinaSecuritiesJournal

ShanghaiSecuritiesNews

SecuritiesTimes

SecuritiesDaily

WebsitedesignatedbyCSRConwhichtheCompany’sannualreportisposted:

www.sse.com.cn

LegalAdviser

China:

JunHeLawOffices

ChinaResourcesBuilding,20/F8JiangusmembeiAvenue,Beijing

Tel:86‐10‐85191300

Fax:86‐10‐85191350

HongKong:

SidleyAustin

39/FTwoInternationalFinanceCentre,8FinanceStreet,Central,HongKong

Tel:(852)25097888

Fax:(852)25093110

ShareRegistrar

HShare:

ComputershareHongKong

InvestorServiceslimited

Shops1712‐1716,17/F,

HopewellCentre,183Queen’sRoadEast,Wanchai,HongKong

ShareRegistrar

AShare:

ChinaSecuritiesDepositoryand

ClearingCorporationLimited

ShanghaiBranch

ChinaInsuranceBuilding,166EastLujiazuiRoad,Shanghai

Title Information

Placewherethisannualreportisavailable Room1110,BuildingB,KaihengTower2,ChaoyangmenInnerStreet,DongChengDistrict,Beijing

PlaceofListingofShares,StockNameandStockCode

PlaceofListingofHShare

TheStockExchangeofHongKongLimited

StockCodeofHShare:2883

PlaceofListingofAShare

ShanghaiStockExchange

StockNameofAShare:COSL

StockCodeofAShare:601808Businesslicenseregistrationnumberof

corporatelegalperson: 1000001003612

TaxRegistrationNumber 12011871092921X

CorporateBusinessNumber 71092921X

NameandOfficeAddressoftheCompany’sAuditor

Domestic:DeloitteToucheTohmatsu

CertifiedPublicAccountantsLLP

Address:8/F,DeloitteTower,

TheTowers,OrientalPlaza,1EastChangAnAve.,Beijing,China

International:DeloitteTouche

Tohmatsu

Address:35/FOnePacificPlace,88Queensway,HongKong

Appendix16.KeyRecognitions

NameofrecognitionAwarding Unit

NationalChampionsin“China’sMostPromisingCompanies2012”

TheAsset

The50MostActiveServiceandTradingCompanies

InternationalBusinessDailybytheMinistryofCommerce

Top100ChineseListedCompaniesinCapitalBrand2013

ChinaCenterforMarketValueManagement

2013All‐AsiaExecutiveTeam “InstitutionalInvestor”

FortuneChina500 FortuneChina

Top500ChineseEnterprises2013 ChinaEnterprisesAssociation

TheWorld’sMostInnovativeCompanies2013(top100)

Forbes

IncludedintheHangSeng(ChinaA)CorporateSustainability

BenchmarkIndexin2013

HangSengIndexesCompanyLimited(HangSengIndexes)

GoldbauhiniaAwardforChineseSecurities‐thebest

listedcompanyininvestorrelationshipmanagement

“GoldbauhiniaAwardforChineseSecurities2013”

ModelenterpriseforChinaCSR2013ChinaFoundationOfConsumerProtectionChinaEnvironmentalJournalistsAssociation

Appendix17.SafeProduction

1. SafeManagementSystem

TheCompanycontinuedtopayattentiontothesafetymanagementandstrengthenedthesafetymanagementsystem.TheCompanycompliedwith ISO9001(qualitymanagementstandard), ISO14001(environmentalmanagementstandard),OHSAS18001(occupationandhealthsafetymanagementstandard)and ISMCODE(internationalvessel safetyandanti‐pollutionrules)and followed the industrystandardsandpracticebothwithinandoutside thecountry.We fullyandeffectivelyimplementedtheSMS/QHSEsystemsandcontinuedtoimprovesuchsystems..

QHSEmanagementorganization

QHSEsystemstructure

Performanceofsafetyproduction(2011‐2013)Index Unit 2011 2012 2013

Numberofinjuryincidentsthatcanberecorded case 35 46 35

AccumulatedOSHAratio % 0.19 0.24 0.18

Accumulatedworkingdayslostratio % 2.66 2.16 1.7

Numberofincidents case 59 59 49

Numberofdeathofemployees person 21

(JointVenture) 0

Numberofdeathofcontractors person 1 0 2Note:AccumulatedOSHAratio=recordableincidents×200000/totalworkinghoursAccumulatedworkingdayslostratio=workingdayslost×200000/totalworkinghours

Target

2. Managementofsafetyproduction

Upholdingtheguidingprincipleof“safetyandpreventionfirst,integratedmanagement”,theCompanyactivelyconstructssafetymanagementoftheteamsandgroups,launchesstandardizationactivitiesforsafeproductionandfullyenhancestheworkingstandardtolayasolidfoundationforsafetymanagementandtobecomeanintrinsicallysafeenterprise..

On‐sitesafetymanagement

Foron‐sitesafetymanagement,STOP(safety,training,observationandprogramme)cardsareusedtoencouragethecorrectsafetybehaviorofemployees.Throughjobsafetyanalysis(JSA),allstaffareparticipatinginriskmanagementtoexerciseeffectiveon‐sitecontrolontheoperatingrisk.Throughcollectingandanalysingsafetysuggestionreport(SSR)fromon‐sitepersonnel,thecorrespondingsafetymanagementsystemcanbeimproved..

Establishmentofstandardizedsafetyproduction

Leadershipandexecutiongroups forstandardizedsafetyproductionareestablished.Pursuant to thestandardsafetyproductionregulations inoil industry, thegroupscompleted targeteddiagnosis, systemamendment,operation, selfevaluation,applicationandacceptance. .

Hoistingsafetywarnings

Safetywarningswerehoisteduponoccurrenceoftypicalaccidentsanddangersintheindustry,whichshowedprominenteffectiveness. .

3. Safetyemergencymanagement

TheCompanypaidmuchattentiontotheemergencymanagementandcontinuedtooptimizetheemergencymanagementsystemandstrengthenedtheon‐siteemergencytrainingsanddrillsinordertoensuretheemergencyrescueworkcanbedulycarriedoutincaseofemergency.Theinjurycasesofemployeescanthusbereducedtoalargeextentandmitigatethepollutionproblemandpropertyloss. .

Improvementinemergencymanagement

In lightof theon‐goingexpansion in theCompany’s internationalbusiness,wehavebeenpayingeffort in improvingemergencymanagement.Inordertofurtherimproveemergencymanagement,theCompanyformulatedtheregulationsondomesticandoverseasemergencymanagement to fulfill theneedof internationalbusinessdevelopmentandsafetymanagement. .

Organizingemergencydrills

TheCompanyactivelyorganizedsafetyemergencydrills toenhance theCompany’sability todealwithemergencies. In2013,allunitsparticipatedinthejointship‐and‐shoredrill,investingCNYT878,700inconducting10,251on‐siteexercisescovering therigs,shipsandshorewith235,227participants, inwhichtherewere380comprehensivedrillsand9,871specialdrills. .

4. Potentialhazardsinvestigationandprevention

Byadoptingthe“riskmanagementsystemininvestigationandpreventionofsignificantsourcesofdangersandpotentialhazards”, the Company obtained immediate control on significant sources of dangers and potential hazards.

5. TheHSEmanagementsystemofcontractors

TheCompanyplaceshighimportancetotheHSEmanagementofcontractorsoastocontinuouslyimprovethecontractormanagementsystem,strengthentheassessmentandreviewoncontractorsandregulatethemanagementofcontractorsthroughthe“HSEmanagementsystemofcontractors”. .

6. Safeeducationandtraining

Promotionofsafetyculture

TheCompanyactivelyorganizedtheactivityof“safetymonth”topromotesafetyviavariousmeanssuchasexhibitionboard,quizandwarningvideos,withanaimtospreadsafetyknowledgeandculture..

Safeproductiontraining

“Inadequatetrainingisthelargestpotentialsafetyhazard”–theCompanyadheredtosuchphilosophyin2013andadoptedthesystemof“onboardwithlicense”and“pre‐jobtraining”toenhanceourqualityofsafetytraining.Allunitsformulatedtheirsafety trainings forall staffandprovided training in linewithactualdemand. In2013,126,249participantsweretrainedacrossdifferentunits. .

Appendix18.QualityServiceTheCompanycontinuedtoimprovequalitycontrol,establishedsoundqualitycontrolsystemtoensurequalityandsafetywork in theorganizationalandsystemaspect.TheCompanyalsodeveloped innovativeservicepractices toprovideprofessionalservicesforcustomersandenhancedproductqualitytoprovidediversifiedproductsinordertomeetdifferentcustomersdemandstothelargestextent. .

1. QualityManagement

TheCompanyadheredtothephilosophyof“guaranteethequalityforourreputation”andkeptimprovingitsqualitycontroltoprovidehighqualityproductsandservices forcustomers tomeet theirneedsandenhancecustomerssatisfaction.

Strongorganizationforquality.Eachdirectunitsestablishedstrongorganizationalnetworkforrespectivequalitycontrolsandcentralizedthecoordinationandsupervisionofqualitycontrolonproductsandservices..

Businesssegments Mainbusinessservice

GeophysicalandSurveyingServices Marineseismicdatacollection,marinesurveying,seismicdataprocessingandinterpretation,land‐basedengineering,underwaterengineeringetc.

DrillingServices Offshoredrilling,landdrilling,drillingrigsmanagementetc.

WellServices Logging,drillingandcompletionfluids,directionaldrilling,cementing,wellcompletion,wellworkover,oilfieldproductionoptimizationetc.

MarineSupportandTransportationServices

Anchoring,towingofdrilling/utilityrigs(vessels),offshoretransportation,standbyservicesofoilandnaturalgasfields,oilextraction,fireservices,rescue,offshorepollutiontreatmentetc.

Improvementofqualitycontrolsystem.TheCompanyadjusteditsqualitycontrolsystembycomplementingwithrelevantproceduresandoperationtoensureitsappropriateness,effectivenessandmanipulability..

Qualitytraining.TheCompanyactivelylaunchedqualitycontroltrainingtoenhanceemployee’sawarenessandabilityofqualitycontrol,inordertomeetthequalitycontrolrequirementduringthecompany’srapidexpansioninproductionscale.

OrganizingQCgroupactivities.TheCompanyactivelypushed forward theestablishmentofqualitycontrolgroups,formulatedimplementationmeasuresofQCgroupactivities,andcontinuedinintroducingsuchactivities.Atpresent,therearetotally35completedoron‐goingactivities. .

Facilitatinginspectiononqualityprojects.TheCompanyintroduceddedicatedqualitycontrolinspection,mainlyonqualitysystem,equipmentandfacilities,customerssatisfactionetc.TheCompanyalsoimplementedremediationandpreventionmeasurestargetingonissuesidentifiedduringtheinspection. .

2. QualityServices

Provisionofprofessionalservices

TheCompany is themajorsupplierofoffshoregeophysicalandsurveyingservices,drillingservices,well servicesandmarinesupportandtransportationservicesinChina.ItsbusinessisalsopresentintheoffshoreregionsofSoutheastAsia,Europe,AmericaandtheMiddleEast.Itprovidesprofessionalservicesofhighqualitytonumerousoilcompaniesaroundtheglobeandfulfillsdifferentneedsoftheclients. .

PTTEPgeophysicalprojectinThailand

TheThailand3DseismiccollectionoperationissituatedinA4‐48&A5‐48industrialareaofThailandgulf,inwhichtherearenumerousabandonedfishingnet,treetrunksanddebris,ifcaughtby theequipment,will threaten thesafetyofunderwater facilitiesandmateriallyaffect thenormaloperationof the fleet.HYSY719 fleethasovercomemuchunfavourableconditionssincethelaunchofoperationin11October2012,suchastheabundantamountofwastematerials, strongandunpredictableoceancurrentandmarinecreatures in thearea.After3.5months,HYSY719completed its2,776 squarekilometers3D seismiccollectionoperation. Itsactionbroughtgoodreputation for theCompany’sgeophysicalbusinessinoverseasmarket. .

Operation(intermsofwaterdepth)

Improvingcommunicationwithcustomers

TheCompanystrivestoenhanceitsservicingabilitytoexpandcustomerscommunicationchannelwithaviewtofacilitateinteractionwithcustomers.TheCompanyhadmultiplevisitstolocalandoverseascustomerstoenhancecommunicationsonearlystageprojectbidding,discussiononbusinesstechnologyandcurrentstatusofoperationsoastobetterunderstandandfulfillcustomers’needs.TheCompanyalsoinvitedcustomerstovisittheCompanyandorganizedlarge‐scalecustomerscommunicationactivities toconsolidate theirmutualunderstandingand lay the foundation forbroaderanddeepercooperationinthefuture. .

In2013,theCompany’soverseasprojectswashighlyregardedandrecognizedbycustomers.

Region Awards

Norway

OutstandingrigmanagementandoperatingcapabilityofCDE(COSLDrillingEuropeAS)wasrecognizedamongcustomersand

rankednumberoneinthecomprehensiveperformanceevaluationofalldrillingcontractorsofStatoil COSLPioneerwasrecognizedasthe“RigoftheMonth”twice

Indonesia BH8rankednumberoneofdrillingcontractorsofPertamina

Mexico TheCOSL2,COSL3andCOSL4rigswereawardedtherecognitionof“Starofsafetyinathousanddays”

CompletionofsecondinnovationprojectwithefficiencyandqualityonQikou18‐1

Withinnovativetechnologiesandadvancedtoolsandmanagement,thesecondaryinnovationprojectofQikou18‐1wascompletedwithhighefficiencyandhighquality.During theoperationofthisproject,8directionaldrillingjobsandTCPjobswerecompletedwithresultsof100%goodholequality,100%perforationrate,100%sealingsuccessrateforpackerswithwirelineaswellaszerosignsofwellborecollisionandequipmentfailurerate.Thisbroughtus4LettersofRecognitionand4TeamCooperationAwards,ontopofwhich,3staffwontheBestSuggestionAwardsforEffectivenessand7stafftheBestServiceAwards..

InnovativeapproachfortheinstallationofChristmastree

In2013, theutilitysurveyingvesselHYSY708 individuallycompleted the installationofChristmastree,whichmarkedthe firstexample inChinaandcreatedanewapproach forinstallationofChristmas tree indeepwateroilfields.Thesinglevesseloperationapproachreducedconstructionprocedures, increasedefficiencyandsavedoperationexpenses forclients. .

3. QualityProduct

Well‐techrelatedproducts

COSLisabletoprovideourcustomerswithafullrangeofconventionalandhigh‐endwirelineloggingtoolsthathavebeencertified.Particularly,ourEnhancedLoggingImagingSystem(ELIS)haswonthesecondprizeforNationalTechnologicalProgressandtheCertificateforNationalIndependentInnovativeProduct.Ourhigh‐endloggingtoolssuchasBasicReservoirCharacteristicTester(Basic‐RCT),EnhancedResistivityMicro‐Imager(ERMI),EnhancedMagneticResonanceTool(EMRT),EnhancedRotarySidewallCoringTool(ERSC)havegainedacompetitiveadvantageintheworld..

Oilfieldchemicalsrelatedproducts

TheCompanyprovidesvariousadditivematerials,whicharenecessary foroildrillingandoilfieldproductionservices,includingdrillingfluidadditives,wellcompletionfluidadditives,cementingadditivesaswellasacidificationandoilfieldproductionadditives. .

Oilfieldproductionoptimizationrelatedproducts

TheCompanyiscapabletoprovideresearchanddevelopment,manufacturing, inspectionandtestingservicesofmiddleandhigh‐endwellcompletionequipments,sandcontrolandoilextractionequipmentsforcustomers.TheCompanyalsoprovidesdesign,manufacturingandon‐siteservicesoftheentirewellcompletionoperationandsandcontrolpillarswhicharesuitablefordifferentwellconditionsinordertosatisfycustomers’variousneeds..

Appendix19.GreenDevelopmentPromotingeco‐friendlydevelopment isoneofourprimaryresponsibility.TheCompanyadhered to thephilosophyof“respectthenatureandprotecttheenvironment”inperformingitsenvironmentalresponsibility.Inadditiontoimprovingenvironmentalmanagementandmakingeffortsoncleanproduction, theCompanyalsocommencedenergysavingandemissionreductiontocontributeinprotectingtheenvironmentanddevelopingaeco‐friendlyculture,withthetargetofachievingcommongrowthanddevelopmentbetweenourcompanyandtheenvironment..

1. EnvironmentalManagement

Environmentalmanagementsystem

TheCompanyseesprotectionofmarine resourcesandenvironment,preventionofpollutionandprotectionofouremployees’healthasitsmission.Basedontheinternationalandstateconventions,laws,regulationsandrulesonmarineenvironmentalprotectionwhichtheCompanystrictlyfollowed, itestablishedasafetymanagementsystem(SMS)for itsvesselsandquality,health, safetyandenvironment (QHSE)system,whichhaveobtainedcertifications fromcompetentauthorities and thirdparties, soas to introduce regulationsonvariousmarine environmentalprotection issues.

Environmentalprotectiontraining

In2013, theCompanyactivelyorganizedenvironmental trainings inrelation togarbagesorting,usageofanti‐pollutionfacilitiesandusageofoil leakageemergencyequipmentwith theaimto furtherenhancetheenvironmentalprotectionawarenessandskillsofon‐siteemployees. .

StatisticsofenvironmentalprotectiontrainingofCOSLin2013

No. Time Location Course Numberoftrainees

1 2013.1 TianjinSupplementaryprovisionVoftheanti‐pollution

convention60

2 2013.6 Tianjin Trainingsonenvironmentalprojects 40

3 2013.7‐11

ZhanjiangPromotionandimplementationofmanagement

measuresinenvironmentalprotection30

Zhanjiang Updatedprovisionsintheanti‐pollutionconvention 180

TianjinEvaluationofenvironmentalriskandenvironmental

monitoring55

Tianjin Offshoreoilleakage 40

2. CleanProduction

TheCompanyadheredtothesustainabledevelopmentphilosophyof“green,clean,low‐carbonandcirculareconomy”andimplementedtheconceptofgreenand lowcarbon intoeverydetail inproductionandoperation.Wecommencedcleanproductionandsaved13,718tonnesofstandardcoalequivalentduringtheyear..

Index Unit 2011 2012 2013

Investmentforenergysavingandemissionreduction

CNY10,000 2411 201.6 250

Description:

‐ Since2012,investmentamountonlyincludethosedirectlyusedinenergysavingandemissionreductionandnotboundwithotherprojects.Assuch,investmentamountinthestatisticsdroppedsignificantly..

‐ Standardcoal:TonsofCoalEquivalent,hastheuniformstandardofthermalvalue.Chinarequiredthethermalvalueof1kgstandardcoaltobe7,000kilocalories.Differenttypesofenergywithdifferentvaluescanbeconvertedintostandardcoalwith7,000kilocaloriesaccording todifferent thermalvalues. .

Classifiedstatisticsofenergyconsumptionin2013

Typeofenergy ConsumptionStandardcoal

equivalent(tones)Proportion(%)

Electricity14,605,000kWh

1,794.96 0.47

Dieselfuel252,798.30tonnes

368,352.41 96.09

Naturalgas255,063.00cubicmeters

339.23 0.09

Oilfuel6,663.91tonnes

9,520.07 2.48

Petroleum 708.12tonnes 1,041.93 0.27

Engineoil1,640.48tonnes

2,296.67 0.6

Total 383,345.26 100

EnergyconsumptionofRMB10,000worthproduction

Year TonesofstandardcoalCNY10,000 YOY2011(%)

2011 0.2353 ‐

2012 0.2297 ‐2.38

2013 0.2192 ‐6.84

Turningwastesintousefulmaterialsanddamagesintobenefits

TheCompany,afternearly3yearsofresearch,developedanewPC‐Litestonesystemforwellcompletionwhichturnstheincinerationwastefromcoalpowerstation,the“Flyash”,intousefulmaterials..

3. QualifiedDischarge

The Company implemented stringent management on offshore discharge of pollutants in accordance to the requirements of the Marine Environmental Protection Law. In 2013, total volume of collected solid waste materials of the year was 3,994.035 tonnes.

MarineDischargedsubstances

Measuresforqualifieddischarge

Domesticsewage

TheCompanyinvestedintheupgradesofanti‐pollutionfacilitiesandequipment.Sewagepumpsandexcretorytreatmentinstallationsontherigswerereplaced.Drainagewaterwaysofresidentialareawererebuilt.Upontreatment,thedischargeofdomesticsewageintherigsreachedrelevantstandards.

DomesticwasteGarbagecrusherswereinstalledintherigsandvesselstohandletheleftoverfoodtopursuequalifieddischarge.Theotherdomesticwastewerepackedandsentforon‐shoretreatment.

OilpollutedwaterOilpollutedwatergoesthroughthetreatmentmachinebeforedischarging.Rigsareequippedwithwasteoilcanstoseparatepollutedoilandwasteoiltosendforon‐shoretreatment.

Description:Toensuregoodoperatingconditionofanti‐pollutionfacilitiesandequipmentofrigsandvessels,suchfacilitiesandequipmentwereincludedinPMSforregularmaintenance,soastopreventleakageofoilinequipmentandfundamentallyeliminatethepossibilityofpollutingtheocean.

StatisticsofdischargedvolumeoftheCompany(2011‐2013)Typeofdischargedsubstances Unit 2011 2012 2013

QualifieddischargeofoilpollutedwaterCubicmeters

755.03 1,291.05 1,287.38

Dischargeofcrusheddomesticwaste Tonnes 179.34 324.71 151.78Qualifieddischargeofdrillingfluid Tonnes 57,734.00 98,165.70 74,751.23Carbondioxide Tonnes 677154.95 777307.48 808361.75Emissionofcarbondioxideforanoutputvalueoftenthousand

Tonnes/CNY10,000

0.49 0.51 0.49

Water‐baseddrillingfluid“GREENDRILL”maximizesenvironmentalfriendliness

The Company successfully developed a kind of environmental fr iendly water‐based dri l l ingfluid“GREENDRILL”usingnaturalmaterialsanddetoxifiedmaterials.Itsenvironmentalfriendlynaturenotonlyreachesthesignificanttechnologicalmetricsofthestate,butalsofulfillingtherequirementsofnationalstandards.When inuse, thisnew fluidsavesupthewaste treatmentproceduresaswellassaves timeandsignificantlyreducethegeneralcostofwellconstructionandincreasedtheoutputandinputratio..

Protectionofmarinespecies

PursuanttoactofmarineanimalprotectioninAustralia,therigsmuststopoperationwithpotentialharmtomarinespecieswhenrareprotectedanimalssuchasseatortoise,whalesanddolphinswereseen.Assuch,therigsstaffwerestrictlyrequiredtoreport immediatelyoncesuchmarinespecieswere identifiedsoasto let theoperatordecidewhetherornottostopoperation.Atthesametime,stringentrequirementsregardingpollutantsdischargewere implemented in the rigs.Oilpollutedwatermustbe treatedon‐shore.NH6wasnevercomplained forenvironmentalprotection issues in7years.For thediagram,whales tendtostaynearus for thegoodandsafeenvironment. .

Appendix20.SocialResponsibilityProspect2013

Lookingforwardto2014,theCompanywillcontinuetoenhanceitscompetitivenessandabilityforsustainabledevelopmenttocontributemoretotheeconomic,socialandenvironmentaldevelopment. .

Facilitatesustainabledevelopment.TheCompanyshallcontinue to improve itscorporategovernance,push forwardlegalcompliance,enhancesustainabledevelopmentstandard, increaseeffort insafetyproductionandensuresafeandsteadyoperationof thecompany. Itwillalsocontinue to implement its technological innovationstrategy,enhanceself‐innovationabilitytoincreasecompetitivenessinitscorebusiness. .

Enhanceservicequality.TheCompanywillcontinuetoprovideprofessionalservicesforcustomersallovertheworldandinnovateour services toprovideproducts thatwill satisfyourcustomersandvalue‐addedservices for customers.

Servetheharmonioussociety.TheCompanyshallplacemore focuson itspeople‐orientedphilosophyandencouragecareerdevelopmentofourstaff,deepenourrelationship,facilitatecommondevelopmentamongtheCompanyandourstaff,strivetodeveloparesponsiblesupplychain,makeprogressinstrategiccooperationformutualbenefits,aswellasincreaseoureffortsonwelfaresoastocontributetothesociety. .

PromoteEnvironmentalfriendlydevelopment.TheCompanywillcontinuetoimproveitsenvironmentalmanagementsystemandintensifyrelevanttrainings.Itwillalsocontinuetopromotecleanproduction,increaseeffortsinenergysavingandemissionreductionandpushforwarditslow‐carbonoperationsoastotakepartintheestablishmentofanecologicalculture.

Appendix21.Directors,Supervisors,SeniorManagementandEmployeesCHANGEINSHAREHOLDINGANDREMUNERATIONSOFCURRENTANDRESIGNEDDIRECTORS,SURPERVISORSANDSENIORMANAGEMENTDURINGTHE

REPORTINGPERIOD

Name Position Sex AgeCommencementandexpiryofterm

Nnumberofshareholdingatthebeginningof

theyear

Numberofshareholdingattheendoftheyear

Reasonofchange

TotalRemunerationsreceivedfromtheCompany

duringreportingperiod(10,000Yuan)(before

tax)

Totalremunerationsreceivedfromthe

shareholdingcompanyduringreporting

period(10,000yuan)

LiuJianChairperson,non‐executivedirector Male 55 2012.6.5‐2015.6.4 ‐ ‐ N/A ‐ ‐

LiYongExecutivedirector,CEOandpresident Male 50 2012.6.5‐2015.6.4 ‐ ‐ N/A 76.89 ‐

LiFeilong

Executivedirector,ExecutivevicepresidentandCFO Male 49

2013.12.20‐2016.12.19 50,000Hshares

50,000Hshares N/A 71.72 ‐

ZengQuan Non‐executivedirector Male 532013.5.24‐2016.5.23 ‐ ‐ N/A ‐ 67.26

TusiYiuWaIndependentnon‐executivedirector Male 64 2012.6.5‐2015.6.4 ‐ ‐ N/A 40.00 ‐

FongWo,Felix

Independentnon‐executivedirector Male 63

2013.5.24‐2016.5.23 ‐ ‐ N/A 40.00 ‐

ChenQuansheng

Independentnon‐executivedirector Male 63

2013.5.24‐2016.5.23 ‐ ‐ N/A 40.00 ‐

ZhangZhaoshen

ChairmanofSupervisoryCommittee Male 58

2013.5.24‐2016.5.23 ‐ ‐ N/A ‐ 58.99

LiZhi EmlpoyeeSupervisor Male 492013.5.16‐2016.5.15 ‐ ‐ N/A 22.14 ‐

WangZhile Independentdirector Male 65 2010.6.5‐2015.6.4 ‐ ‐ N/A 8.00 ‐

WuMengfeiFormernon‐executivedirector Male 58

2010.5.28‐2013.5.27 ‐ ‐ N/A ‐ ‐

AnXuefenFormerChairmanofSupervisoryCommittee Female 59

2010.5.28‐2013.5.27 ‐ ‐ N/A ‐ 32.43

DongWeiliang Executivevicepresident Male 56 2007.6‐ ‐ ‐ N/A 82.23 ‐

XuXiongfeiVicepresident,chairmanofLabourCommittee Male 52 2007.6‐ ‐ ‐ N/A 64.70 ‐

YuZhanghai Vicepresident Male 59 2007.8‐ ‐ ‐ N/A 67.25 ‐

KangXinVicepresidentandChieflegalOfficer Female 39 2013.8‐ ‐ ‐ N/A 12.51 ‐

CaoShujie Vicepresident Male 49 2010.3‐ ‐ ‐ N/A 60.54 ‐

ZiShilongVicepresident(FormerEmployeeSupervisor) Male 42 2013.8‐ ‐ ‐ N/A 44.72 ‐

QiMeisheng Vicepresident Male 45 2013.12‐ ‐ ‐ N/A ‐ ‐

YangHaijiang Secretaryoftheboard Male 44 2010.4 ‐ ‐ N/A 51.37 ‐

Total / / / / 50,000Hshares50,000Hshares / 682.07 158.68

Appendix22.Notes1. ValuechainofOFSindustry.

OFSandequipmentindustry,refersspecificallytothetotalingofenterprisesthatprovideservicesfortheexplorationandminingofoilandgas,forthegeophysicalexploration,logging,drilling,completion,groundengineeringandconstruction,and for thepetroleumengineering technology research anddevelopment, equipmentmanufacturing,materialsmanufacturing,etc. .

2. Listofkeyclientsandsupportivedata.

Drilling:

‐ China(CNOOC,etc)‐ Global(Statoil,ConocoPhillips,PetroleosMexicanos)

Well:

‐ China(CNOOC,Petrochina,etc)‐ Global(BP,Shell,ConocoPhillipsandChevron)

86,717.0

62,677.8

51,764.2

39,224.0

43,433.5

37,320.7

26,862.3

44,216.6

17,469.6

12,842.9

2013201220112010200920082007200620052004

China‐ CNOOCCapitalExpenditure1,000,000 CNY

103,300.0

96,000.0

85,072.0

66,710.0

67,152.0

58,529.0

63,785.0

39,486.0

31,389.0

31,800.0

2013201220112010200920082007200620052004

Global‐ StatoilCapitalExpenditure1,000,000NOK

304,100.0

311,744.0

267,975.0

259,120.0

257,562.0

215,416.0

172,511.0

130,409.0

119,227.0

90,448.0

2013201220112010200920082007200620052004

China‐ PetroChinaCapitalExpenditure1,000,000 CNY

24,520.0

23,078.0

17,845.0

18,421.0

20,650.0

22,658.0

17,830.0

15,125.0

12,281.0

13,035.0

2013201220112010200920082007200620052004

Global‐ BPCapitalExpenditure1,000,000 USD

37,985.00

30,938.00

26,500.00

19,612.00

19,843.00

19,666.00

16,678.00

13,813.00

8,701.00

6,007.00

2013201220112010200920082007200620052004

Global ‐ Chevron Capital Expenditure1,000,000 USD

MarineSupport&Transport:

‐ 93%revenuescomefromCNOOCanditsGroup(1H14).

GeophysicalSurveying:

‐ 87%revenuescomefromCNOOCitsGroup(1H14).

3. Introductionon33marketsegmentsofOFSindustry.

TheOFSindustryiscomposedof33professionalmarketsegments.

Highlights:

‐ Offshoredrillingbusiness (43.4bnUSD) is the largestmarketsegment, shares17%of thewholeOFS industry.Meanwhile, it’salso thesecond fastest growingmarket segmenet,withaCAGRof24% in thepast fiveyears.

‐ Offshoreengineeringconstruction(32.3bnUSD)isthesecondlargetsmarketsegment,withaCAGRof14%inthepastfiveyears.In2009,undertheslashofexpendituresonoilandgasexploitationduetoglobaleconomycrisis,theoffshoreengineeringconstructionpartstillmanagedtogrowat1%. .

‐ Drillingequipment(12.6bnUSD)isthefastestgrowingmarketsegmentinthepastfiveyears,withaCAGRof27%.In2009,itgrewat‐11%duetotheglobaleconomycrisis. .

‐ Underseaequipment(11.7bnUSD)alsogrowsveryfast,withafive‐yearCAGRof20%,andalsomanagedtogrowat1% in 2009. .

40,145.0

32,576.0

26,301.0

26,940.0

26,516.0

35,065.0

24,576.0

22,922.0

15,637.0

12,734.0

2013201220112010200920082007200620052004

Global ‐ Royal Dutch Shell Capital Expenditure1,000,000 USD

86,717.0

62,677.8

51,764.2

39,224.0

43,433.5

37,320.7

26,862.3

44,216.6

17,469.6

12,842.9

2013201220112010200920082007200620052004

China‐ CNOOCCapitalExpenditure1,000,000 CNY

86,717.0

62,677.8

51,764.2

39,224.0

43,433.5

37,320.7

26,862.3

44,216.6

17,469.6

12,842.9

2013201220112010200920082007200620052004

China‐ CNOOCCapitalExpenditure1,000,000 CNY

15,537.0

14,172.0

13,266.0

9,761.0

10,861.0

19,099.0

11,791.0

15,596.0

11,620.0

9,496.0

2013201220112010200920082007200620052004

Global‐ ConocoPhillipsCapitalExpenditure1,000,000 USD

4. 10‐14oilpricesandstockpricesofmainOFScompaniesandCOSL.

Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Society China Shanghai, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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